What to Choose: Angel Investors or Crowdfunding?

Are you wondering which investor platform is better among angel investors and crowdfunding for your start-up investment? This WealthHow article will guide you with regard to what to choose between the two.

Advice:
Angel investors usually like to invest in a company which is able to return at least 10 or more times of the actual investment in a span of 5 years. If they find that the company is not doing well after the start-up stage, they will promptly remove their financial support. Hence, beware when opting for angel investors.

If you have an idea that is waiting for a take off because you are confused about choosing the right investor platform between angel investors and crowdfunding, try to list down your requirement on a piece of paper. Thereafter, weigh the pros and cons of both these types of investors and zero in on the right option. While angel investors are not interested in small investments, there is a restriction on the amount you can raise through crowdfunds. Apart from money, angel investors also provide valuable guidance and good contacts that help the business. However, if you have an innovative idea which you want to reach to the masses, it is best to go for a crowdfunding as it also entails publicity. If you are still confused about which is better, read the following sections that will provide a distinction between the two.

About

An angel investor is an individual or a group that finances a small start-up for an entrepreneur.

Crowdfunding involves collecting capital of small value from a large number of investors for supporting a new venture.

Familiarity

An angel investor, in most cases, is a relative, friend, or acquaintance of the business owner.

Crowdfunding contributors may or may not know or be related to the business owner.

Scale

An angel investor, being an individual, can raise money on a large scale as compared to that of crowdfunding.

Crowdfunding helps raise a certain amount of collective money as it faces restrictions.

Return on Investment

An angel investor will expect a part of equity in your company.

Crowdfunding individuals receive certain rewards based on their investment. They may also receive certain perks if their contribution is greater.

Ownership

As the angel investor gets a part of equity, he also becomes an owner in the venture.

The ownership of the company does not go to the crowdfunding contributors and stays with the owner.

Exercising Control

As the angel investor puts in his own money in your venture, you may be surprised at the amount of control he holds over your business decisions.

Crowdfunding contributors have no control over the decisions of the owner.

Business Wisdom and Networking

As the angel investor is a very experienced person, who may have made it big in business, he will be able to guide you in the right way and also provide his contacts.

Crowdfunding contributors may not have the experience or acumen to advise the owner on business matters.

Prime Motive

An angel investor will only support you if he knows about the viability and profitability of a venture. He is a part of your business because he wants to earn profit from it.

Crowdfunding contributors support the venture because they believe in the leader, business concept, or merely want to become a part of a collaborative venture. Profit, as a motive, cannot be denied, but it is secondary for the crowdfunding contribution.

Frequency of Funds

Angel investors can put in one-time seed money or can continue their monetary support throughout the venture.

Crowdfunding investment usually is limited to the start-up capital due to restrictions on the same.

Restrictions

In case of angel investors, there are no restrictions on the maximum amount of investment made by an angel investor.

Aggregate capital raised through crowdfunding should not be more than 1 million during a 12-month period. This is to protect the interest of non-wealthy investors who lose their savings when a venture fails.

Easy to Get

It is difficult to search and find the right angel investor, and then convince him to put his money on your business idea. This process can be very time-consuming, and the importance of your business idea may just fade away.

It is very easy to find crowdfunding. Especially with the advent of social networking websites, word about the venture spreads like fire and gets more and more people interested in it. You can also pay some amount of the contribution and utilize crowdfunding websites like Kickstarter or Indiegogo.

Risk of Failure

According to a Harvard report compiled by William R. Kerr, Josh Lerner, and Antoinette Schoar, it has been found that start-up companies which are funded by angel investors are less likely to fail than those who opt for other means for their initial funding.

There are many crowdfunds which fail because of several reasons every year, and many people lose out on their money.

Publicity

An angel investor is usually an individual or group, so you will have to undertake a special publicity strategy to tell the world about your start-up.

As a number of people connect with the crowdfund social networking pages or invest in it, there is no need for additional publicity as the venture becomes popular among the masses.

Reliability

Angel investors have been around for a long time, and as you know them personally, they are relatively reliable.

Crowdfunding is a relatively new concept and does not enjoy the experience or credibility of angel investors.

Now that you know what to choose between angel investor and crowdfunding, find an option that will benefit you most in financial terms. Remember that whatever you choose, set clear terms for investor exit so that conflicts can be avoided.