Startups looking to raise money may not be too picky in terms of where they get it, but finding the right fit for your company is often more than just financing and may reflect some of the differences between angel investors and venture capitalists.
First let’s start off with where Angel Investors and Venture Capital Investors get their money.
- Angel Investors are typically individuals – They typically don’t have other decision makers in their investments and they are usually investing their own money. This gives them flexibility in terms of deal terms and it also means that they often don’t have external requirements on how they get their money back.
- Venture Capital investors are typically not individuals, but rather companies or firms. They are most typically investing other people’s money in a Fund. VC’s will raise this money from people referred to as Limited Partners or LPs. LP’s are typically writing million-dollar checks and expecting VC’s to invest that money and get a return.
Both Angels and Venture Capitalists look for companies that can grow and be successful but each may look at companies at different stages and be interested in making different types of investments. Because VC’s are investing other people’s money they have general expectations on how long it may take to get their money back and will structure most returns and investments to have liquidity.
Angel investments are typically investing in early stage companies and are most often writing checks between 5-50 thousand with some angel investors going even higher. It’s most typical for angels to invest in the early stages of growth.
Angels and VC’s may take different amounts of interest in the operations of the company too. While Angels will often be available and interested in helping companies VC’s are likely to insist on a board seat. As companies continue to raise funding founders should be aware of balance in the board of directors.
Generally the board and the founder are aligned however if the founder and board disagree it’s possible for the board to fire the CEO so just make sure you consider the long-term direction of your business as you take on investors and board members.
Ultimately both VC’s and Angels want companies to succeed and depending on the stage of your business angels or VC’s may be a better fit for growing your business. Lastly remember that you don’t have to take investment and there are plenty of successful companies that have never raised funding and did it all on their own. There’s no right or wrong so consider the pros and cons of the different paths as you go on your startup journey.