Angel Investors VS. Venture Capitalists – Ask Jay
Let’s say you have the greatest and the most brilliant idea of starting a potential billion dollar business. But, the problem is… where do you get the startup funding you need? During your extensive research, you should have come across these 2 terms:
Angel Investors and Venture Capitalists
So, what’s the real difference between angels and VCs, and which one should (can) you go for? Well, there are tons of information out there – about angels and super angels, venture capitalists, seed funds and all that jazz. Assuming that your idea is good and realistic… before you decide which one to go for, it’s important for you to understand the difference between angels and VCs.
Angels are basically individuals who have their own money to invest in startups. The investments usually range from $10,000 to $250,000. There are some big-time angels, and then there are some quiet behind-the-scenes sort of angels. If you’re even interested enough to click on the link and start reading this article, I believe you’ve heard names like Ron Conway in Silicon Valley and the others. These are the big-time angels that invest larger numbers.
What’s nice about these type of investors – is that they tend not to jump on your board of directors at first. They tend to be like connectors. They help introduce you to venture capitalists if you need it. Sometimes they’re very active and will work really hard for you. Cause they’re investing very early and they expect to earn many times their original investment. They understand the risks that they’re taking, but they can’t resist the lure of the potential upside.
Venture Capitalist (VC)
Then you have venture capitalist. Remember, venture capital firms invest other people’s money in your idea. The money I mean here can be billion-dollar funds that they’ve raised from what they call LPS. These big investors typically want to take 20 to 30 percent of your company. They want it huge, like 10x or 20x huge returns on their investment. They’re going to join your board. They’re going to try and steer you toward the most massive potential exit – which may not be what you want. You have to think hard before taking that money.
Then there’s a number of differences between each type of investor. Super angels is a popular term right now — using a combination of their own money and other money, but they invest in larger amounts like a million dollars in your idea. I like these in-between investors because they give you all the benefits of angels without all the high pressure for super returns from a VC. It gives you more time to figure out your business before you execute.
Angels or VCs
The very first thing you’ve gotta do – is to figure out whether you’re in the angel time or the VC time. Then, figure out what’s the least amount of money that you could take for your business. I want you to take a piece of paper — and write down what defines your next milestone and success, whether it’s a release of your website or a certain number of customers. You name it. From there, figure out what’s the least amount of money you’d need. If that number is less than $100,000, you shouldn’t even be thinking about venture capital.
The only time you should start thinking about venture capital – is when your business is in the structural phase – where you’re thinking about numbers that are more than a few million dollars. I know these are crazy numbers – and you might think that they’re almost inaccessible. But, I’ll tell you this… any one of you could build a business that raises millions of dollars!
Now, what you need to do is to – write it down and figure it out. By now, you should know what’s the best for your business. So…
Angel Investors or Venture Capitalists?
As found on Youtube