Angel Investor vs. Venture Capitalist
April 1st, 2008CEOs Dinner Part 5
Just wanted to take a minute to describe the difference between an angel investor and a venture capitalist - it’s very important to know if you’re looking to raise money any time soon.
The bottom line to use is the number $500,000. If you’re looking to raise anywhere from $50,000 to $500,000, your best option is to use angel investors - most Venture Capitalists don’t want to get into any deal that small.
If you’re looking to raise $1M or more, now you’re out of the angel investor range (for the most part) and looking for venture capitalists. But, honestly, even $1M for most VCs is not interesting - typically they don’t want to talk for less than $3M to $5M. As you saw from yesterday’s post, the average investment by a VC in 2007 was $7M.
With that out of the way, what’s the DIFFERENCE other than money given?
Mostly, they are the same - they are people who are giving you money for a share of your company. However, Venture Capitalists do this for a LIVING, they are professional money sources. They also tend to take larger stakes and be much more ruthless about management - they also really meddle in your business much more (typically) than an angel investor will.
An angel investor on the other side tends to just be a very wealthy person looking for good places to put their money. Many times angel investors are investing for other reasons than just the financial aspects. They could be investing because they believe in you, are related to you, believe in your cause, etc…
Most angel investors will be much more relaxed and will also probably take LESS of your company.
The other benefit of an angel investor is that sometimes the deal can be crafted as a “debt” too - so they have “rights” to convert that debt into stock later, but for the time-being, they’re just loaning the money to you. Each angel investor has their own thought/view point on which one they prefer.
A big thing to be careful of when you use angel investors…
Don’t give yourself a ridiculous valuation in order to sell LESS % of the company. It may seem like a great idea at the time, but when it’s time to do a venture capital raise later, your valuation may be too high for anyone to get involved!
Oh, also, positive side to angel investors is that venture capitalists like seeing some of that money in there - they feel just a BIT more confident (especially depending on WHOs money is in first).
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Tags: Angel Investor, investors, Raising Money, venture capitalists
