Alternatives to bank credit for raising capital include not only innovative online instruments, but also options that still fall under the umbrella of traditional finance: one example is the business angel. These are individuals (usually entrepreneurs or former entrepreneurs with capital to invest) who finance early-stage or rapidly expanding startups or SMEs.

La choice of funding sources represents a decision of crucial strategic significance for any enterprise. This choice is not merely a matter of finding economic resources, but profoundly affects corporate governance, speed of development, internal culture and external perception of the enterprise.

After the comparison between crowdfunding and venture capital, we want to propose a comparison crowdfunding vs business angel to analyze advantages and disadvantages of these two very different ways of raising capital and check possible synergies between alternative and traditional finance.

Two different approaches to raising capital: crowdfunding vs business angel

The crowdfunding is a mode of online capital raising aimed at a broad audience, enabling a company to raise capital by engaging a multitude of investors, often non-professionals, through dedicated platforms. In its forms equity and lending, falls under crowdinvesting and involves the acquisition of company shares (equity) or the granting of a loan (lending) by investors. Seeking investors online leads to the creation of a community and network of potentially useful contacts.

The business angel, on the other hand, is a high-net-worth individual who decides to support the growth of a company that he or she sees as promising by making a contribution not only financially but also made up of skills, relationships, and strategic support, in exchange for a Equity type participation in the company.

In the first case, the company's contact with the many investors is direct only at the capital raising stage, then after the campaign it becomes more tenuous and indirect. In the second case, however, the relationship between company and investor is direct and close constantly.

Crowdfunding and business angels, therefore, have in common the fact that they are two ways of raising capital that also bring other assets besides money: that is, they bring smart money. Otherwise, they are very different.

We summarize the main differences between the two approaches to capital raising.

	Crowdfunding	Business Angel
Number of investors	Many, often small	One or a few, with more capital
Average amount invested	Low (100€ to 10,000€ per investor)	High (from 25,000€ to over 250,000€)
Methods of access	Regulated online platforms	Angel networks or direct contacts
Selection process	Analysis of the project and the company by the platform	Thorough due diligence by the business angel and/or its advisors
Post-investment support	Limited except through community	Active: mentoring, networking, operational support
Impact on governance	Low, if non-voting shares are used	High: angel acquires shares and administrative rights and often enters the CDA or places conditions

Crowdfunding: advantages and disadvantages

We devoted an in-depth article to the pros and cons of crowdfunding. Advantages and disadvantages of raising capital online, moreover, also depend greatly on the characteristics and approach of the company choosing this path.

We can summarize the main ones as follows advantages of crowdfunding:

• Access to a broad audience of potential investors with lower barriers to entry than traditional financing channels
• Ability to do integrated marketing, market testing to reduce financial risk and create a community of customers-investors-supporters
• No investor control power if well structured corporate charter in equity crowdfunding.

And the main disadvantages:

• It requires a communication strategy and marketing challenging and structured
• Imposes broad exposure with reputational risk
• Indirect costs (content, advertising, consulting) can be significant
• Not all business models are suitable for crowdfunding: you need good product/service communicability and ability to activate your audience.

Business angel: advantages and disadvantages

Business angels are also known as angel investor or as High-Net-Worth Individuals. They typically invest in high-potential companies that are at the stage seed o early stage. The practice of creating BA groups investing together in a project, rather than working individually (along the lines of the club deal). The investment provides a stake in the company's capital stock in return.

L'capital contribution of a business angel has some characteristics in common with that of venture capital funds and is defined in particular by the possibility of accessing not only financing, but also strategic support and concrete participation of the investor in the company's activities. The business angel becomes both a lender and a valuable partners. From this duality come advantages and disadvantages that we can summarize as follows.

Advantages:

• Contribution of entrepreneurial and strategic skills relevant to growth.
• Increased speed of collection if a good match is created between investor and company.
• Access to a network of useful professional contacts.
• Credibility and validation.
• Single interlocutor.
• No obligation for reimbursement.
• Possibility of repeated investment.
• Increased risk appetite and understanding of early-stage phases.

Disadvantages:

• Direct involvement of the lender in business management.
• Dilution of corporate control.
• Potentially long and complex negotiation times and processes. Especially if the company is a startup or otherwise young, the business angel may weigh more heavily in the negotiation and propose terms that are unfavorable to the other party.
• Possible dependence on one party and risk of strategic misalignment. A "wrong" BA, even if it provides the necessary capital, can turn into an obstacle if strategic visions diverge or its interference in management becomes excessive and unconstructive.

Strategic integration of different funding sources

Crowdfunding and business angels can be part of the same growth path. On the other hand, diversifying sources of capital is a sound management practice, as it reduces dependence on a single channel, increases financial flexibility, and allows for planning a longer-term, more resilient fundraising strategy suited to support ambitious growth plans.

For example:

• Crowdfunding campaign to validate market interest and build metrics and visibility to make the company more attractive in the eyes of a business angel, who finds in it an already established base and objective traction data. Lending crowdfunding can also be used as a bridge financing waiting to receive business angel capital.
• In contrast, an entrepreneur might Starting with capital and mentorship from an angel investor to strengthen the team and business model, and then scale up with a crowdfunding campaign, using the angel investment as the initial campaign anchor to increase public trust.
• Business angel as lead investor. Business angels themselves can participate in equity crowdfunding campaigns. This already happens: according to the Italian Business Angel Association Survey of 2023 business angels that year invested about €37 million in equity crowdfunding campaigns, and it was €59 million in 2022, the culmination of a three-year period of continued growth. 2023 was the year in which business angel investments in Italy in general declined, but they picked up again in 2024, a year for which we do not yet have data on the crowdfunding sector, however.
  • For the bidding company to have a business angel participate in a crowdfunding campaign is a way to include a qualified investor, who brings significant capital and incentivizes unsophisticated investors to trust, giving external validation to the campaign. The business angel, of course, should be given special quotas, with greater administrative rights than the standard quotas for unsophisticated investors.
  • For the business angel, on the other hand, it is a way to reduce the risk of their investment and reduce transaction costs, while also gaining access to a shortlist of projects that have already been pre-selected and thus qualified.

There is no absolute best solution for a financing path: the choice depends on the life stage of the company, the type of project, the resources available and those needed, and finally the overall strategy. But understanding the logic and implications of each tool is critical to use capital intelligently Every enterprise needs.

This mechanism can trigger a virtuous circle in which each source of funding and each milestone achieved strengthens the company's attractiveness to other sources, allowing it to gradually build both the financial capital and credibility needed to sustain ambitious growth.