Choosing the right investor is an important decision for any startup business. The two most popular options today are Business Angel (BA) and Venture Capital (VC). Each type of investor has its own advantages and disadvantages, suitable for different stages of business development. This article will help you better understand investors and then make the most suitable choice for your business.

What is a Business Angel (or Angel investor)?

Business Angels (BA), also known as angel investors, are individuals with high net worth, often successful entrepreneurs or experienced investors. They invest capital in startups or small companies in exchange for equity in the company.

Some key characteristics of a Business Angel include:

• Capital source: Business Angel uses its own capital to invest, not through investment funds.
• Investment level: Business Angel’s investment capital is usually smaller than that of venture capital funds, ranging from several hundred million to several billion VND.
• Investment stage: Business Angels often invest in the early stages of a business, when the business is newly established or in the initial stages of development.
• Experience and knowledge: Business Angels often have extensive experience in the business field and are willing to share knowledge with startups.
• Relationships: Business Angels can expand relationships for startups, helping businesses reach potential customers, suppliers and partners.

The nature of angel investors’ activities

The nature of the activities of angel investors is to provide investment capital and share experience and knowledge. At the same time, it helps businesses expand relationships, participate in the management and development process of startups. In addition, they also provide comments and advice to the board of directors.

Benefits of receiving capital from angel investors

When receiving capital from angel investors, startups will receive many benefits such as:

• Investment capital: This is the most important benefit when receiving capital from angel investors. Startup will have the necessary capital to develop ideas, products and services, expand markets, strengthen staff, etc.
• Experience and knowledge: Angel investors often have a lot of experience in the field of business and investment. They can share valuable experiences and knowledge with startups, helping startups avoid common mistakes and develop faster.
• Relationship network: Angel investors often have an extensive network of relationships with other investors, potential customers and strategic partners. They can introduce startups to these people, helping startups access more resources and development opportunities.
• Development support: Angel investors often participate in the management and development process of startups. They can contribute opinions, advise the startup’s board of directors and help the startup make the right decisions.
• Reputation: Receiving investment capital from angel investors can help enhance the startup’s reputation in the market. This will help the startup attract more customers, partners and talented employees.

Advantages and disadvantages

Receiving capital from angel investors will bring many advantages and certain disadvantages to startup businesses.

Advantages of receiving capital from angel investors

When receiving capital from angel investors, your business will receive a number of advantages such as:

• Businesses have more capital to develop their products and services.
• The unit also has more experience and knowledge shared and supported by angel investors.
• When cooperating with angel investors, you can access resources and opportunities to quickly expand your network of relationships.
• Receiving capital from angel investors can create a positive ripple effect, attracting the interest of larger investors and creating trust on their part.

Limit restrictions when receiving capital from angel investors

Besides the advantages of receiving capital from angel investors, startup businesses will also encounter certain limitations such as:

• Loss of control: You leading a startup business may lose some control of the business to angel investors.
• Development pressure: Startups are under pressure to grow quickly and achieve high profits.
• Conflict of interest: There may be a conflict of interest between the startup and the angel investor.
• Thorough appraisal process: Startups must go through a thorough appraisal process from angel investors.
• Profit sharing: Startups must share profits with angel investors.
• Not every startup is suitable: Startups need to meet angel investor criteria to receive investment capital.

Distinguish between angel investors and venture capitalists

Angel investors and venture capitalists both play an important role in promoting the development of startups. However, these two types of investors have distinct characteristics.

• Regarding capital sources, angel investors use personal capital to invest, while venture capitalists manage investment funds mobilized from many other investors.
• Regarding the investment amount, angel investors often invest smaller amounts suitable for the early stages of the startup. On the contrary, venture capitalists often invest larger amounts of money (several billions to tens of billions of dong) in the later stages of startups.
• The level of risk is also a difference. Because of their early-stage investments, angel investors accept a higher level of risk than venture capitalists.
• The profit expectations of the two types of investors are also different. Angel investors expect high returns in the short term, while venture capitalists patiently wait for high returns in the long run.
• The level of participation in startup activities is also a distinguishing point. Natural investors are often deeply involved in startup operations, contributing ideas and advising the board of directors. In contrast, venture capitalists rarely participate in startup activities, only monitoring and evaluating investment effectiveness.

See more: Increase success rate for raising startup capital

Depending on your business’s financial situation, experience, and products sold, you can consider choosing a suitable investor. Wishing you the best choice to help your unit grow more and more.