When a start-up company seeks funding, it often turns to investors like venture capitalists and angel investors. The difference between venture capitalists vs. angel investors is sometimes challenging to define since they both ultimately serve the same function for an early-stage company: giving the business money so it can keep running. However, while venture capitalists invest money collectively controlled by a venture capital fund or firm, an angel investor invests their own money.
In this guide, we’ll go over:
- What Are Venture Capitalists?
- What Are Angel Investors?
- Venture Capitalist vs. Angel Investor Salaries
- How to Become an Angel Investor vs. Venture Capitalist
- Bottom Line: What’s the Difference?
What Are Venture Capitalists?
Venture capitalists (VCs) work in venture capital firms and determine how the fund should invest its money. VCs typically invest this money into early-stage companies seeking funding. As that early-stage company grows and becomes more profitable, the venture capital firm sees higher returns on its initial investment.
“The day-to-day varies from fund to fund and investor to investor,” says Ashley Aydin, a principal investor at VamosVentures. “Typically, the job entails a lot of researching different markets and where there’s white space, reading and writing thought pieces, talking to founders and other investors about their ideas, and supporting portfolio companies to scale.”
Some venture capitalists, venture capital firms, and funds specialize in one specific industry or area. For example, a VC with a particular interest in artificial intelligence (AI) may prioritize funding start-ups that focus on emerging technologies and using AI in novel ways.
“You can also invest across the stage spectrum,” says Aydin. “You can be a Pre-Seed investor looking at very early stage companies or a Growth investor looking at later stage companies.”
Learn more about venture capitalists.
What Are Angel Investors?
While VCs use their fund’s pooled money to invest in companies, angel investors use their own money. Angel investors are typically high-net-worth individuals who often have a special interest in the company they invest in. Sometimes, an angel investor will invest because they personally know the founder or because they believe strongly in the company’s future.
In exchange for their investment, angel investors often receive equity within the company, meaning they become partial owners. So, just like with venture capitalists, as the company grows and becomes more profitable, an angel investor will see a return on their initial investment.
Angel investors exist to allow early-stage start-ups to get off the ground. So, while a VC looks to invest in companies with some signs of future growth and potential, angel investors take considerable risks and give their money to companies that often don’t have a track record to inform their future potential.
Learn more about the different types of investors.
Venture Capitalist vs. Angel Investor Salaries
According to salary data reported on Glassdoor, venture capitalists make an average of about $120,300 per year. Angel investors, on the other hand, make around $274,500 annually. However, it’s wise to take both roles’ salaries with a hefty grain of salt. Venture capitalists and angel investors alike depend on their investments to make money. If they pick the right investments, they can make a lot of money, but if they bet on companies that ultimately fail, their annual salaries will suffer.
It’s also important to note that angel investors are high-net-worth individuals. So, their annual income could result from businesses they own or operate alongside their investment portfolios.
>>MORE: Check out some of the best paying jobs in finance.
How to Become an Angel Investor vs. Venture Capitalist
Background
Becoming an angel investor relies on accumulating enough capital to begin investing in start-ups. There isn’t one set path to get there. Some angel investors have a finance background, maybe even working as VCs, before forging their own path and investing in companies with their money. Others may start on the business side, founding and selling companies and eventually reinvesting in smaller start-ups.
Venture capitalists can also come from a variety of backgrounds. Building a solid foundation in finance, economics, and investing is a good starting point for those interested in working for a VC firm. Many VCs also get Master of Business Administration (MBA) degrees or further education in finance and economics. These higher degrees can make them more marketable to larger investment firms and increase their expertise in the world of finance.
Ultimately, for venture capitalists, “networking and getting your name out there is key,” says Aydin.
Working for a start-up, gaining exposure in investment-focused roles like investment banking, and making the right connections are all great ways to start working towards becoming a VC.
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Skills
“A lot of what it takes to be a VC can be learned on the job,” says Aydin. “So, instead of skills I like to highlight the top qualities of a VC: grit, hustle, an investigative mindset, a collaborative working style, likes numbers, and can engage with a variety of people.”
In addition to analytical thinking and strong communication skills, a venture capitalist needs certain hard skills to handle the day-to-day of the job, such as:
- Understanding how to perform a comparable company analysis
- Knowing how to use Excel
- Projecting investment returns using financial models like discounted cash flow (DCF) analysis
Angel investors need similar skills, especially an entrepreneurial spirit and the ability to make decisions effectively. Additionally, if an angel investor manages their own investment portfolio, they may need a good understanding of investing-related concepts. For example, they may need to be able to read stock charts to get an idea of the market’s activity as a whole.
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Bottom Line: What’s the Difference?
The primary difference between a venture capitalist and an angel investor is whose money is being invested: VCs invest capital controlled by a venture capital fund or firm, while angel investors invest their own money. Additionally, VCs sometimes invest in later-stage start-ups and companies rather than the very early-stage start-ups favored by angel investors.
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