When starting a new business or startup, what most of the entrepreneurs face problems with in the early stages is how to attract capital. If you are worried about financing your startup to safely kick off, there are many ways. You can either convince a loaded friend (or two) to invest in your business or start with some crowd-funding. However, to ensure a proper and stable external funding with keeping growth and expansion of your venture in mind, approaching either angel investors or venture capitalist can be the right way. Now the question is out of the two options, which one to go for.
Here in this article we will be explaining various differences between angel investors and venture capitalists and which one you should approach for your startup.
Angel Investor
An angel investor is a high net worth individual who can make investments at their own discretion. Furthermore, they are expected to have a net worth of at least $1 million (excluding the living space) and with the anticipation of it to continue in the future too. (It’s better to not confuse them with loaded friends and family.)
- Angel investor can be an individual or a group of people with previous experience in startups. They can even be a normal professional like a doctor or lawyer.
- They invest less than venture capitalists usually less than $ 50k. However, there is no set amount.
- They may contribute with their business experience and advice.
Angel investors don’t hesitate to invest their money in small ventures and startups. They are mostly interested in helping passionate entrepreneurs.
Venture Capitalist
A venture capitalist is a firm or professional money managers who through limited partnership (with other people) raise capital funds and then invest in the best early stage companies in exchange of equity and ownership.
- VC invest large amount of money, usually more than $1 Million.
- They prefer to work with large and established businesses rather than early stage startups.
VCs expect a handsome amount of return from the companies they invest in, as they have multiple investors at their back who they are responsible to answer to. For this reason, VCs rarely invest in small startups. Rather, they prefer somewhat pre-established emerging businesses.
Involvement Level
Angels can contribute in your business with advice but they can be expected to be hands-off too. It all depends on the individual, however, VCs bring a lot of changes in the way you deal and manage your business. They may set a new management team. Steep targets are usually set to achieve and monitor performance regularly. If they are not happy with your performance, you can get fired too.
On the other side, VCs have higher risk tolerance level compared to Angel investors. Angels mostly can’t invest more than once because of limited sources of funds. VC’s can wait for longer period of times before your business start making decent revenues. They can also look after the startups through several rounds of funding.
It takes a long time and effort to qualify for VC funding. Afterall, they are professional money managers and evaluate your startup from all angles. It can be an extremely exhausting process to work with VC’s during and after the evaluation process.
Prominent VC’s operating in Pakistan
Not very well known but Pakistan does have its own VC firms. Ijara Group, Lakson Group and 47 Ventures are some of the VC firms operating in Pakistan.
VC funded startups in Pakistan
Many startups operating in Pakistan are backed by international VC firms. Convo, a multi-platform enterprise for remote team working is backed up by Morgenthaler Ventures. A real estate portal, Lamudi has investment by Rocket Internet.
Bookme, an online portal for ticket booking is another example that is backed by Element Ventures.
Angel Investors In Pakistan
DotZero Ventures is a group of angel advisors and investors that invests in early stage companies and technology based startups. Popinjay, a fashion label and Artsy, a marketplace for artists are two of the more companies they have invested in.
Started by two angel investors Usama Shahid and Habib Ahmed, Cloud9 startups is an incubation and investment capital center for entrepreneurs. Nest i/o, a well known technology hub has many angel investors part of the community.
Among international angel investors working in Pakistan, Gilles Blanchard is one with stakes in Zameen.com, Pakistan’s no.1 property portal.
Final word – You can go for VC firms or angel investors. It all depends on your startup’s maturity level. It also depends on your ambitions and your style of working. Your capability of sharing power with outsiders and comfortability level with chasing targets set by someone else, are the points that you should also keep in mind before choosing either of the two.