03 Jul Venture Capital Or Angel Investors?
Venture Capital or Angel Investors?
Written by: Savero S. Alim
Looking for the right angel investor for your startup is very crucial if you don’t want to waste your time (and their time). Depending on the nature and strategy of the investors, investment preference is different one to another. Every venture capital firm has their own investment thesis/preference on what they look at startup companies, and the most distinct being the industry preference and startups stage.
A media conglomerate group might have a venture capital arm that focuses on media related startups, hence pitching an agriculture technology is not a good fit for the company’s strategy. Trying to pitch an idea of your startup to a late-stage focused venture capital firm will also hit the wrong target (unless your idea is very promising and you have all the expertise and proven track record of managing a company, then you will probably get a referral to other angel investor).
So who is the right angel investor for my startups?
When you are looking to get a funding for your idea stage startup, the first obvious choice is to bootstrap your own capital. Later, you should go to pitch to your family, friends, and people in your network to begin with. These people are not the people who are looking to ask for equity in your company.
One reason why you should bootstrap and look for funding from relatives is because investors want to see what you are willing to risk for your startup. If you as the startup founder does not even want to put your own money for your startup, how can investors put faith and trusting their money to you? Another reason is that you will lose big chunk of equity in your startup if investors invest in too early.
Angel investor usually invest in seed stage companies who already have their MVP (Minimum Viable Product) and has begun to gain revenue. However, there are angel investors that will invest to your idea, if they have strong faith in you. Since angel investors are individuals, their investment ticket size will not be as big as venture capital ticket size. Angel Investors typically invest as low as USD 5,000 to USD 100,000; though it can go even below and over it.
The due diligence and investment decision making process of angel investor is shorter than that of venture capital. If you already have your product and start gaining traction, you might want to consider venture capital funding to scale up your company. Again, if you are on early stage you should go for venture capital that are also doing early stage funding, vice versa.
To land an investment commitment from a Venture Capital, you need to spare more time. Unlike angel investor, there are several brains that are involved in the decision making. Thus, you should not wait until you ran out of money before start meeting with angel investor since there are several steps you need to go through before the deal. If you are scheduled for your first meeting with a venture capital, most probably you will meet with the analyst or associate.
Do not belittle them. Even though they are probably younger and less experienced than you, if they do not like you then you probably have blow up your opportunity meet the managing partners. Usually there will be second and third meeting before they finally commit to invest, and there will be due diligence between those time. Overall, it can take few weeks to months.
In meeting with venture capital firm, they will ask you for your financial performance, thus preparing it beforehand will ease the flow of the meeting. Also, be clear on the funding needs, valuation, and your expectation from the venture capital. Being unclear and confused during meeting will show that you are not ready for investment.