Should startups seek funding from VCs or Angel Investors?

While there is no right or wrong answer to this question, there are a few points you may want to consider:
  • Most VCs would not invest less than USD 1 mn. So, if you need lesser than USD 1mn capital, angel investors may be more appropriate.
  • Decision-making is much longer for a VC as they have to follow their own processes and internal approvals. It can often take between 30 – 90 days after the VC has broadly agreed to invest. On the other hand, since angels are making investments in their individual capacity, decision making is faster.
  • Most VCs are likely to ask for some control over decision-making, and most would certainly ask for board positions. Angels on the other hand may not seek board positions.
  • VCs may not be able to participate closely with the operations, while angels who invest because of their interest in the domain may find great joy in assisting you with your daily challenges. Depending how deep your team’s expertise on critical aspects of your business are, you may want to consider whether you want someone who can help you on the operational front or you need someone who is hands off.
  • VCs and Angel investors are ‘expected’ to give you different kinds of advice. Angel investors, because of the stage they participate in are expected to help you with the fundamental of the business at the starting point and guide you through the ‘setting up’ stage. They are also expected to help you with advice on what kind of investors to connect with, how to pitch and, often, help with the introductions too. On the other hand, VCs, because they usually participate after the concept is proven, are expected to give entrepreneurs advice on scaling up and of preparing the company for scale, fine-tuning the business model if required. They could also help with introductions, PR and in hiring senior employees.
  • Most importantly, VCs usually invest after the concept and team have been proven. I.e. after market validation of the idea and after the team has demonstrated that it can deliver. Angel investors invest at a paper/power-point stage and give just enough money to prove the concept.

So, when seeking investments, evaluate what your needs are and what your situation is and then decide if you want to approach VCs or angel investors.

1 comment:

  1. Thanks for elaborately comparing VCs and Angel Investors. I think we should also first take into consideration if the entrepreneur's startup really needs an external investment. Anyway, I enjoyed reading this post. As mentioned in this article, if the entrepreneur have insufficient funding for their startup, you may want to pitch for an angel group, like iSeed.