Venture Capital vs. Angel Investment: Which one is best for you?

Need funding to start or grow a new business? There are a few options available to UK startups, so it can be hard to know which is the best route to take.

Two of the main funding solutions available for UK startups are venture capital and angel investment.

These two investment types are often confused, and it’s easy to see why. There are lots of similarities between them, especially as both are specifically focused on helping startups and SMEs to achieve growth.

To help you decide which is the best option for your business, we’ve put together a handy guide to venture capital and angel investment. We’ll take a look at what each investment type is, and the main differences between them.

So, let’s get started.

What is venture capital?

Venture capitalist firms invest money into startups or small businesses, usually those with potential for rapid growth.

They specifically target new or young businesses, particularly those that are pre-profit and in the early stages of development. VC investment supports the development and hopefully, the future viability and profitability of the new company.

Venture capitalists tend to be made up of a group of investors, who pool their money together to an equity stake in the business. They then earn returns by selling shares or receiving dividends when the company starts to make a profit.

And it isn’t just financial investment that startups may receive as part of a VC funding arrangement. Venture capitalists may also help with strategic advice and mentorship, to refine and optimise the business so as to give it the best chance of success. As part of the investment arrangement, they may ask for a seat on the company’s board.

Venture capital funding usually works in cycles, or rounds of investment (i.e. Series A, B, C and so on).

This type of funding can be vital for startups, giving them a crucial cash injection and helping them grow faster than they would otherwise. However, it does usually mean giving up some equity and control in the business.

Venture capital investors are often associated with tech startups, such as those working in fintech, biotechnology and sustainable innovations.

What is angel investment?

Angel investors also focus exclusively on startups and young small businesses. But rather than being a firm made up of multiple investors, angel investors are usually just one individual.

It’s usually entrepreneurs or successful business owners who choose this investment path. They’ll have extensive industry experience and a high net worth. Think Dragons Den, where the dragons are angel investors choosing which business ideas to invest in.

Angel investors are most often involved during the startup (or ‘seed’) phase of a brand new business. They may get involved with the development or launch of products, providing strategic advice and mentorship as well as funding.

There are many benefits of this kind of investment for startups. Angel investors tend to take a more flexible approach than venture capitalists, and they focus on building a relationship and backing the vision of the entrepreneur.

Funding amounts are likely to be lower than with VC investment, but this also means startups don’t have to give away such a large equity stake.

Venture capital vs. angel investment - the key differences

Venture capitalists and angel investors are very similar, in that they both focus on startups. But there are some key differences between them, such as the following:

• Size of investment. Angel investors tend to invest smaller sums, anywhere from a few thousand to a few million pounds. Whereas venture capitalists may invest up to tens of millions.
• Timing. Angel investors usually provide funding in the very earliest stages of a business, helping to turn a concept into a viable business. They often fill a gap between funding from friends, family and personal savings, and more significant investment. While it’s not always the case, venture capitalists may get involved later, when it’s time to start growing the business. Their focus is on scaling up the business quickly, and helping it to become profitable.
• Size of equity stake. Venture capitalists may take up to a 50% stake in the business,¹ whereas for angel investors it’s usually much lower (i.e. around 10% to 30%). This means that the startup founder can retain more control of the business.
• Source of funds. Where venture capitalists pool funds from multiple investors, angel investors often use their own personal wealth.

Which is the best option for your company?

The right option for your business may depend on the following:

• How much funding you require - it may be that you need more than an angel investor can offer
• What stage of development your business is at
• How much of an equity stake you’re willing or able to give away
• Whether you need a structured or more flexible funding arrangement
• Whether you’d benefit from mentorship, strategic and a closer relationship with your investor.

Grow your company and go global with Wise Business

While you’re researching funding options for your startup or small business, it’s also worth making sure you’re set up with the right business account.

Open a Wise Business account and you can hold and exchange 40+ currencies at once.

You can send fast, secure payments to 140+ countries, and get account details to get paid in 8+ currencies like a local.

Whenever you need to send, spend or exchange foreign currencies, you’ll benefit from the mid-market exchange rate, with low, transparent fees*.

You’ll also benefit from all of these features with Wise Business:

• No ongoing fees, minimum balance requirements or foreign transaction fees
• Debit and expense cards for you and your team, which you can use in 150+ countries
• Multi-user access for team members, with ways to control and manage permissions
• Pay up to 1,000 people at once with the Wise batch payments feature
• Integrate with your favourite cloud accounting solutions
• Use the powerful Wise API for automation and streamlining workflow
• Take advantage of Wise Interest to make your funds work harder when you’re not using them (capital at risk).

With a truly global account, you’ll be all set to grow your business worldwide.

Capital at risk. Growth not guaranteed. Wise Assets UK Ltd is authorised and regulated by the Financial Conduct Authority with registration number 839689. When facilitating access to Wise investment products, Wise Payments Ltd acts as an Introducer Appointed Representative of Wise Assets UK Ltd. Please be aware that we do not offer investment advice, and you may be liable for taxes on any earnings. If you’re uncertain, we urge you to seek professional advice. To find out more about the Funds, visit our website.

After reading our comparison of venture capital vs. angel investment. , you should have a better idea of which is best for your startup.

You’ll need to make your decision based on how much funding you need, how much equity and control you’re willing to give away, and whether your company meets the target profile of potential investors.

Sources used:

1. Investopedia - Private Equity vs. Venture Capital: An Overview

Sources last checked on date: 05-Feb-2025