The Difference Between Angel Investing vs Crowdfunding

Published on
November 17, 2022
The Difference Between Angel Investing vs Crowdfunding
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There are a lot of options out there when it comes to raising money for startup businesses, but two popular methods are angel investing vs crowdfunding. So, what's the difference between the two?

Let's take a closer look at angel investing vs crowdfunding.

Angel Investing vs Crowdfunding: The Differences

Crowdfunding is a newer way of raising capital that has become popular in recent years. With crowdfunding, startups raise money from a large number of people, typically through an online platform.

There are a few key differences between angel investing and crowdfunding.

First, accredited investors usually do angel investing, while anyone can invest in a crowdfunding campaign.

Second, angel investors invest a larger amount of money than the average crowdfunding investor.

Third, angel investors are more hands-off. Crowdfunding investors often want to be involved in the company and have a say in its direction.

Fourth, angel investors often invest in companies that are further along in their development than crowdfunding campaigns.

Finally, angel investors get equity in the company in exchange for their investment while crowdfunding investors usually receive rewards or perks instead.

So, which is better?

Angel investing or crowdfunding?

It depends. If you're a startup looking for seed capital, then angel investing may be a better option.

However, crowdfunding could be a better option if you're a more established company looking for a smaller amount of money.

What Is Angel Investing?

Angel investing is when an investor provides capital to a startup in exchange for equity or convertible debt. Angels usually invest their own money as opposed to using VC firms or other institutional investors.

One of the main benefits of angel investing is that it allows startups to access capital that they may not be able to get from other sources. This is because angels are usually more willing to take risks on early-stage companies than VCs or banks.

Another benefit of angel investing is that it gives startups access to the angel's network and expertise. Angels often provide valuable mentorship and advice to the startups they invest in.

Finally, if the startup is successful, angel investing can provide a significant financial return. Angels typically invest in companies that they believe have high growth potential, so there is the potential to make a lot of money if the company does well.

However, angel investing is also risky. Startups are often very early-stage and have a high failure rate, so there is a chance that the angel could lose all of their investment.

What Is Crowdfunding?

Crowdfunding is the practice of raising funds from a large number of people, typically through the internet. It’s a relatively new concept that has only taken off in the past few years.

There are a few different types of crowdfunding, but the most common is probably rewards-based crowdfunding.

With this type of crowdfunding, people who contribute to a campaign are typically rewarded with some kind of perk, like a product or service related to the campaign.

So, what’s the difference between angel investing and crowdfunding?

For one, angel investors are typically more hands-off than those who participate in crowdfunding campaigns. They may advise and guide the company or project they’ve invested in, but they typically don’t get involved in the day-to-day operations.

Crowdfunders, on the other hand, tend to be more involved in the projects they support. They may not have a financial stake in the success of the project, but they often feel more invested in its success or failure.

Another big difference is the amount of money involved. Angel investors typically invest larger sums of money than those who participate in crowdfunding campaigns. And, because they’re investing their own money, they typically expect a higher return on their investment.

Crowdfunders, on the other hand, tend to invest smaller amounts of money. And, because they’re not typically expecting to make a profit, their goals are often more focused on supporting a project or cause they believe in.

So, which is better?

It really depends on your goals. If you’re looking to invest in a company or project with the expectation of making a profit, then angel investing is probably a better option for you.

But crowdfunding might be better if you’re more interested in supporting a project or cause.

(Source)

Legal Differences

Both angel investors and crowdfunding platforms provide vital funding for startups, but there are some key legal differences between the two.

1. Investment Size

One of the key differences between angel investing and crowdfunding is the size of the investment. Angel investors typically invest larger sums of money than crowdfunding platforms. This is because they are investing their own money, rather than raising money from a large number of small investors.

Angel investing is when an individual investor provides capital to a startup company in exchange for equity. The average angel investment is around $25,000.

Crowdfunding is when a group of people pools their money together to support a company or project. The average crowdfunding campaign raises around $5,000.

If you're looking to make a quick return on your investment, then angel investing is probably the better option.

However, crowdfunding might be the better option for you if you're looking to support a company or project that you believe in.

2. Investment Risk

Another key difference is the level of investment risk. Angel investors tend to invest in early-stage companies, which are often high-risk.

Crowdfunding platforms, on the other hand, tend to invest in later-stage companies, which are often lower-risk.

3. Investment Structure

The investment structure is also different. Angel investors typically take an equity stake in the company, which means they share in the company’s profits (or losses).

Crowdfunding platforms tend to provide loans to startups, which must be repaid with interest.

4. Investment Timeframe

The timeframe for investment is also different. Angel investors typically have a longer-term investment horizon than crowdfunding platforms. This is because they are investing in early-stage companies, which often take longer to generate returns.

5. Investment Control

Another key difference is the level of investment control. Angel investors typically have a high degree of control over the companies they invest in. This is because they often have a seat on the company’s board of directors.

Crowdfunding platforms, on the other hand, typically have a lower degree of control.

6. Investment Returns

Angel investors typically seek higher returns than crowdfunding platforms. This is because they are investing in early-stage companies, which carry significant risks.

Which is Better?

The average person is probably more familiar with crowdfunding than they are with angel investing. After all, crowdfunding is the process of raising money for a project or venture by soliciting small donations from a large number of people.

You may have used a crowdfunding platform like Kickstarter to fund a personal project or donate to a friend’s business venture.

On the other hand, angel investing is when an individual invests their own money into a company or venture.

Angel investors are typically wealthy individuals who are looking to invest in up-and-coming businesses. They may provide funding in exchange for equity in the company or simply donate money with no expectation of anything in return.

So why should you care about the difference between angel investing and crowdfunding?

For one thing, angel investors tend to have more money to invest than the average person who participates in crowdfunding. This means they can provide a much-needed cash injection to a young company.

In addition, angel investors often have connections and resources that can help a company grow and succeed.

Crowdfunding, on the other hand, is a great way to get small businesses off the ground. It allows entrepreneurs to solicit donations from a large number of people, which can ultimately lead to a successful business venture.

FAQs About Angel Investing vs Crowdfunding

Is angel investor the same as crowdfunding?

While angel investors can provide a large amount of capital, they also demand a large share of your company. Alternatively, crowdfunding allows entrepreneurs to raise smaller amounts of money from a large number of people.

Which is better, angel investor or venture capital?

In general, angels are more willing to take a chance on startups with interesting ideas, while venture capitalists are more interested in the growth potential of a business. Angels invest a smaller amount than venture capital firms do, but they get a lower stake in a company.

What are the disadvantages of angel investors?

  • Less equity: While angels provide the capital to get your business up and running, they get an equity stake in your company.
  • Pressure: Because angel investors are expecting a large return, they may put added pressure on you and any employees who work for your company.

Conclusion

So, which is the better method of startup funding, angel investing vs crowdfunding? It really depends on the investor's goals and preferences.

For starters, angel investors tend to invest more money into a startup than crowdfunding investors. Angel investors also typically have more direct access to founders and more control over their investment than crowdfunding investors.

However, there are several advantages that crowdfunding offers over angel investing. For one, crowdfunding allows investors to invest in startups regardless of their location. Additionally, crowdfunding makes it easy to diversify across many different startups, and it can be treated as a passive investment, rather than an active one.

If you're looking to build and scale an angel investment syndicate, we can help. We have a proven track record of helping our clients raise capital and grow their businesses. We'll work with you to create a custom plan that fits your needs and helps you reach your goals.

Contact us today to get started.

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Jed Ng
Author:
Jed Ng

“Jed is the Founder of AngelSchool.vc - a program dedicated to helping emerging investor build and scale Angel syndicates.

He has a track record of exits and Unicorns, and is backed by 750+ LPs.

He previously built and ran the world's largest API Marketplace in partnership with a16z-backed, RapidAPI.com".

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