A business angel or angel investor is a person who is determined to inject capital into a venture or company with high growth potential, but what are the differences with other types of investment such as venture capital?
In the market there are different investment alternatives to obtain returns such as shares, debt instruments, currencies, metals, as well as private equity funds.
However, in the entrepreneurial environment there are frequent investment options such as Triple F, business angel, venture capital, accelerators or incubators as well as government financing. Just to mention some of the investment alternatives for SMEs ..
What is a business angel or angel investor?
This is an investor who has funds to support the takeoff of ventures. The business angel injects capital into a startup, SME or project in its first months of life with capital and advice in exchange for obtaining high returns, as defined by ConnectAmerica.
On the company side, the angel investor enters a crucial stage for SMEs, called the seed stage. In this phase, the companies' main objective is to develop their idea to validate the business model.
The investment provided by business angels allows the consolidation of projects throughout Latin America. Currently, the maximum average ticket in the region is $114,000, according to the Rockstar Angel Investor Study . This represents the interest of investors to invest in companies that are taking off, thanks to the ecosystem and proposals that they find in LATAM.
What is the profile of a business angel?
This type of investor is defined by contributing "smart capital" in a venture. In general, this person is connected to the entrepreneurial ecosystem and is in contact with different business angel networks to find potential projects.
Typically, an angel investor started out as an entrepreneur and now intends to support other entrepreneurs. It also has the following features:
- Its investments are focused on small and medium-sized companies .s.
- Most of these investors are seeking a position on the board of directors or a consulting role.
- They accept only 3 out of 10 offers that are presented.
- They look for double digit returns.
- They can invest from 400 thousand to 4 million pesos per company.
- They are looking for a position on the board of directors.
According to Rockstart's analysis, 81% of angel investors surveyed in Latin America are motivated by the possibility of obtaining good returns; in addition to being driven by the positive impact that emerging companies can generate in the economic development of the different countries in the region.
This study also emphasizes the sectors in which angel investors invest the most in Mexico:
You can also read: Venture capital vs seed capital, what is the difference?
Business angel vs venture capital
Although both types of investments inject capital into companies and ventures in their early stages of life, there are differences between each of them.
The angel investor frequently invests in ventures in the seed stage and in the process of validating their business model; meanwhile, in venture capital or private capital he invests in early stages and in growth.
Differences between a business angel and a private equity fund:
- The business angel is a private investor who bets his own wealth to promote startups.
- It offers, mainly, financial support, although it will also provide advice and connections if the entrepreneurs request it and they want it.
- A venture capital fund will ensure the success of the company through a specialized team and strategies that allow them to achieve their objectives.
- They invest in companies in various sectors and with great growth potential.
At WORTEV CAPITAL, we are a venture capital firm that drives the growth of innovative start-ups. Our objective is to stimulate the development of more enterprises from their early stages, accompanied by a nuclear business accelerator that is integrated into the operation of the companies. In this way we seek to create an ecosystem that positively impacts everyone.