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The commonly understood difference between Angel Investors and Venture Capitalists can be distinguished by the organizational status of investors involved and the stage at which the investor in question puts money into a new enterprise.

The stages of investment in a startup venture can be classified as follows: seed funding, first round funding, second round funding, mezzanine funding, and initial public offering (IPO). Typically, but not always, Angel Investors put money into a startup company at the earlier and riskier seed stage than do Venture Capitalists.

The term "Angel Investors" refers to private individuals who take positions in startup companies usually at a very early stage. Angel Investors often have founded successful companies in the same or related field. Angel Investors are often motivated by their perception of an attractive opportunity in the startup company in field in which they have previous experience. It is typically easier for a startup company to raise funds from Angel Investors at the seed stage where the only tangible product is an idea in someone's mind.

Venture Capitalists, by contrast, typically work for organization with a specific charter that circumscribes the amount of money that they can invest and the types industry groups that are allowed for investment purposes. Venture Capital firms are much less likely to invest in startup companies at the seed stage. Venture Capital Firms will usually possess greater expertise in leading companies through successive funding stages leading to an Initial Public Offering, however.

The different focus and focus of Venture Capital Firms and Angel Investors are not mutually exclusive. It is not uncommon for a startup firm to receive investment from an Angel Investor during the Seed Stage and later work with Venture Capitalists after the business model of the startup company has become more successfully established.

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