Venture capital or rather a business angel as an investor? Which form of investment suits your startup better? How do VCs and business angels differ? And what are the advantages and disadvantages of each type of investment?
Venture capital is a form of investment in which an investor provides a founder with capital in exchange for a stake in his or her company. Venture capital is not a loan, but rather a kind of "development aid" for startup businesses. It entails high risk for the investor, since the success of a business cannot be guaranteed, i.e. the investor might not generate any profits with his investment or might even lose it altogether.
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The stake to be claimed in exchange for capital depends on the company’s lifecycle stage (i.e. seed stage, early stage or later stage) as well as the enterprise valuation - these are the two decisive factors that determine the investor’s investment risk. In many cases, the investor’s involvement goes beyond purely financial participation: information, control and participation rights may also be part of the agreement.
Business angels usually invest in startups during their early stage. Here it is often the case that an individual (e.g. a successful entrepreneur) invests resources from his or her own private assets. Beyond investment, business angels often support the founder with their expertise and relevant contacts.
Last accessed: September 2023