Use these 7 differences as a Guide when choosing between Angels & VC’s + when “pitching” these potential Investors.
Topics: Personalities & Backgrounds, not equally Diverse, Emergency Funding, Impacts, Difficult to work with, Bad Deals
For those of you looking to finance your Startup, raising money is one of the most challenging tasks you’ll ever face as an entrepreneur. While you may think you understand the basic difference between Angel investors & Venture Capitalists (VCs) for Finding Funding, you may not understand their similarities & differences sufficiently, in order to pitch them the most effectively. The following are seven (7) key characteristics you should know about each investor type.
1. Usually different Personalities.
VCs are generally public personas. Angels are often behind the scenes. VCs are in the business of deal flow. They want to hear about as many startups as they can. To fuel this, they must be public & accessible. They’ll be active on Twitter, Instagram & popular Blogs – in order to raise awareness among entrepreneurs. VCs need to be celebrities among entrepreneurs.
Angels tend to be more private and harder to find, because they don’t want to be inundated by deals. For most Angels, startup investing is a hobby that must be balanced with the rest of their obligations. If they’re too public, they’ll be flooded by entrepreneurs seeking money. Sure, some angels will actively Blog, Tweet or create an Angel List profile, but these are tend to be the most active. Many Angels aren’t digital natives, and the majority like peace & quiet. Therefore, they won’t be easily found on social media.
2. Different Backgrounds.
Angels are usually former Entrepreneurs, Founder, CEOs or other business leaders, They usually invest by leveraging their personal startup or business expertise. That background influences the types of industries they’ll consider and the individual entrepreneurs that inspire them.
VCs tend to have financial management or professional investment backgrounds, altho’ may be former entrepreneurs, This influences the way they interact with and assess entrepreneurs.
Quantitative analysis of a product’s traction and the potential of its market will heavily influence a yes or no investment decision when Finding Funding.
3. Not equally Diverse.
Angels are more diverse than VCs. There is greater diversity in the global Angels than in the VC industry. Whether that’s race, age, gender, geography, or experience, Angels embody a wider gamut of backgrounds & perspectives – which is better – if you plan to go global.
VCs are less diverse than Wall Street, and it’s predominantly centered around Silicon Valley and the high tech centers for Finding Funding.
4. They have diff amts of Liquid Cash on hand for Emergy Funding.
VCs generally don’t get 100 % of their fund’s money upfront. Instead they must periodically issue Capital Calls to their Limited Partners (LPs), requesting their next round of money. Granted, since they are professionals, they will almost always have enough cash on hand to do their deal with you in Finding Funding.
Angels, in turn, may need to re-balance their overall portfolio by selling some stocks in order to free up enough money to invest in your startup
Money loses value if it’s not put to work; therefore, the money that Angels & VCs invest is often invested elsewhere before it’s re-allocated to a startup.
5. They have different Impacts.
VCs are more likely to crush your company. Venture funds must produce venture returns for their LPs. In order to achieve this, at least one or two of their investments must provide huge returns. We’re talking 30 times or greater, return on a given startup investment in order to counter-act the fund’s bad/failed investments. To do this, VCs encourage their startups to swing for the fences. They push Founders to spend big and take big, calculated risks – if it has the potential to turn that startup into a big winner. VCs are more likely to take a Board seat at your company. Angels generally don’t take Board seats and shouldn’t . That reinforces their ability to influence your startup. For the entrepreneur, this means that a VC might push you to take risks that might not be the wisest choice for you, your employees or your customers. If you’re considering whether or not to go for venture capital, you must consider whether you want that extra pressure and whether an aggressive growth trajectory is right for you.
6. Investors can be Difficult to work with.
The big egos of success has made some Investors surly personalities. Entrepreneurs will have the inevitable task of avoiding bad investors. Some VCs will clash or undermine your decisions as an entrepreneur – and sometimes they’re justified. Some Investors will demand greater control or influence over your day-to-day than you should give.
7. Beware of Bad Deals.
Most VCs won’t deliberately try for non-market-standard deal terms because word gets out too quickly. If entrepreneurs learn about a greedy VC, they’ll spread the work and discourage their peers from approaching them. VCs also have a better grasp of how other funds and firms will examine a startup in future rounds of financing. The VC wants to structure their investment in such a way that it does not discourage future investors.
Angels get into bad investment terms more frequently, because an Angel doesn’t know market-standard terms and/or doesn’t understand how non-market terms hurt everyone involved. Smarter Angels know they must be fair with the entrepreneur, if the startup is to succeed in the long-run and pay them back.
Comments: Do you know any other significant “differences” between Angels & VCs?
from Entrepreneur.com 06 Oct 16 enhanced by Peter/CXO Wiz4biz