What is the difference between an investor and business angel?

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There are a variety of different deals struck throughout the negotiation phase in an investment matter. These at times blur the lines of exact nature of the deal and the distinction between a straight investor and a business angel.

However, if we take them at their simplest form an Investor invests the funds required in return for an equity stake in the business. They then sit back and wait for a return on their investment. Generally speaking with new start businesses or new technologies, the motivation for investment is not an annual return in the form of a dividend as they can go for a safer listed entity for this. They generally want to see their investment increase ten-fold or more over the medium-term through the business taking off.

A Business Angel will get involved in the business and will bring to the table business and/or industry experience and contacts. They will take a mentoring role to ensure the business has every chance of success. They may commit funds but will see their main investment in the business as ‘sweat equity’ working in the business in return for an equity stake in the business.

For more information on Investors and Business Angels please read our article, Investor or a Business Angel?

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