Entrepreneurship and Small Business (ESB) V2 Certification Practice Exam

What is a key difference between angel investors and venture capitalists?

1. Angel investors are typically more hands-on.

2. Venture capitalists invest smaller amounts.

3. Angel investors usually invest their own money.

4. Venture capitalists focus solely on startups.

The correct answer is: Angel investors usually invest their own money.

The distinction that angel investors usually invest their own money is a fundamental characteristic that sets them apart from venture capitalists. Angel investors are often high-net-worth individuals who use their personal funds to support early-stage businesses or startups that they believe in. This direct investment allows them to take on greater risks compared to institutional investors because they are often more personally connected to the ventures they support. In contrast, venture capitalists generally manage pooled money from various sources, including institutional investors, and invest on behalf of these groups. This framework influences their investment strategies and the type of companies they choose to back. While the level of involvement can vary for both groups, angel investors are often more flexible and may not demand as much control or structure as venture capitalists, who tend to seek more significant stakes and may impose stricter terms. Additionally, venture capitalists typically focus on more established businesses rather than just startups, which adds another layer of differentiation between their roles in the investment landscape.