Nivi · October 19th, 2007
Q: Should I raise money from VCs or angels, all things being equal?
There is no prototypical VC or angel. Instead of pitting VCs versus angels, consider their perceived pros and cons and choose the best available investor.
Angels are perceived to have less money, invest for fun, make their investment decisions quickly, and not ask for control. VCs are perceived to have more money, invest profesionally, make investment decisions slowly, and ask for control.
Seek a VC or angel who has follow-on capital to support companies in tough times, invests like his life depends on it, makes investment decisions quickly, and doesn’t ask for control.
Companies that try to raise money from angels often end up raising money from VCs and vice versa. You can’t tell where this road will take you until you get on it. Many VCs invest in seed stage companies with favorable terms—and many angels invest with onerous terms.
Finally, raise money from angels if you’re hoping to sell your company quickly for $10M, with very little investment, and lots of capital gain for the founders. Most VCs are shooting for $100M+ exits. Either way, seek investors who agree with your definition of victory.
Q: What’s the idea behind Venture Hacks?
We show entrepreneurs how to negotiate better deals with their investors.
First-time entrepreneurs usually negotiate sub-optimal deals that leave millions of dollars on the table. Or worse, they negotiate awful deals and screw themselves.
Entrepreneurs don’t know how their first deal will affect the rest of their chess game with investors—but their investors do. Entrepreneurs play this game once-a-lifetime… investors play it once-a-day.
Startups have one chance to raise money right. You can fix almost any mistake in a startup—but you can’t fix your deal. If you hire the wrong employee, you can fire him—but you can’t fire your investors.
We try to level the playing field with knowledge, so entrepreneurs can do this critical job right. In the words of Francis Bacon, “Knowledge is Power.”
Q: Why should entrepreneurs read Venture Hacks?
Informed entrepreneurs will get better deals. Even a company with a great exit can benefit from a better deal that makes more employees rich.
Entrepreneurs usually get their advice from other entrepreneurs who are inexperienced, investors who are biased, and lawyers who do things right (legally) but don’t know the right thing to do.
Venture Hacks is our attempt to open-source everything we’ve learned from our great mentors and advisors. We strive to be objective but our inevitable biases favor the entrepreneur.
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