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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Topics Angels
Sounds cool, but what if I had an idea, I had a passion, I started to do some things (found guys who help me with code, etc.) and I even don’t need much money! I need people, connections, the right place. BUT! I live in Russia! And the first problem I face is how to get to US? What kind of Visa should I ask for? Who can send me an invitation to US? How can I deal with potential VCs/angels if I’m 21 years old guy from Russia and even don’t have a US visa? It’s a broken circle. So all these problems with choosing a right investors seem a cakewalk to me comparing to the rest. Any advice?
Vladislav,
The advice is simple. Stop thinking about VC, angels and US visa. Just build your product and build your *people* network. Either they will come or your product will fail. In the later case, just start over with another idea.
That’s all.
Yes. You’re right. Thanks! 🙂
Guys:
Good stuff.
Could you look into adding the following points and clarify these questions re : “Should I raise money…all things being equal”
1. Angels also belong to groups of other angels, say The Band of Angels and make decisions to invest their own money or through the group either with other people or the group’s funds
2. Heard stories that VC’s will sometimes invest their own money as angels if the deal is too risky for the firm?
3. Also corporate people aside from the usual suspects (Google..blah blah blah..Facebook) are investing $25-100K, we just had one such conversation last week.
Anyway keep up the good work, and it would be great to talk with you guys anytime.
Best,
Abir Bhattacharyya
http://www.linkedin.com/in/abirb
abirb12@yahoo.com
Hi Abir, I have seen VCs invest their personal cash into startups that didn’t make sense for the firm. In each case, the investor already knew the founder well.
We are actually in this situation now. We are close to investments from two major Angels and two Brand Name VC’s. The angel money will come with a lot less strings attached and the cash can be in the bank in a week.
The Angels have as much money as a small VC fund so there is more if needed later.
The VC’s on the other hand have relationships with tens of other portfolio companies that when working with can give us a huge advantage and open up doors with companies that we may not be able to do so on our own.
We are thinking about splitting the round with the Angel and VC or VC’s (if they will come in together), but then the Angel may wait until the contracts are finished with the VC’s which can take an additional month or more.
Wish us luck 🙂
How important is geography to an investor (VC or Angel) in choosing whether to invest or not? We are based out of San Diego, but are making great contacts in silicon valley. I know there is no hard and fast rule, but generally speaking… would a silicon valley Angel or VC be open to investing in a San Diego-based company or would the geography be a deal-killer?
Gary Gil
http://www.podclass.com
Hi Gary, A promising company can raise capital if it is in Antarctica. Witness all the venture capital funds investing in Asia and India.
Good investors aren’t going to lower their bar just because you’re proximate to them, but they probably will raise it if you’re not.
Hi Nivi… Thanks for the reply.