Looking for a seed investment for your startup? Here is the difference between an Angel Investor and Venture Capital.
Starting up a business is expected to raise great challenges for newbie entrepreneurs and first time startup founders with regards to the factors needed to be considered in building one. One major part essential for a small tech company or for startups when looking forward to being developed in the future is the kind of Capital it must secure.
A lot of businesses these days failed to make it to the top due to lack of capital and growing financial problems. In this case, even if a startup is potentially capable to succeed, struggling to supply finances without exceeding expenditures remains the greatest test for most entrepreneurs. If you really want to expand your small business, you need to have a large amount of seed investment, fixed source of capital or a strong financial support to offer more than what you’re capable of.
At this point, you need to choose which among the many kinds of investors in the business world is worthy to be dealt with. Let us begin with defining and differentiating the two most common types of investors; Angel Investor and Venture Capital.
Angels Are Real
Angel Investors are individual investors devoting in the business at an early stage which means they prefer supporting startups. They are more interested to take the risk of seed funding newly built businesses than those that are already huge, expanded, and have stood on their own. They support potentially successful startups using their own money as long as they receive a profit in return. Angel Investors look for business relationships, applying personal taste, and more involved with business decisions through offering advice base on their own experiences. They will urge you to earn more money from your business in exchange for their seed. Although startups have a good chance to grow through associating with Angel Investors, there are two things you must think about. First is the difficulty of looking for an Angel Investor interested in seed investments the type of business you have. Secondly, the amount of money they invest for startups is typically less.
Before choosing your Angel, ask yourself
- Does the Angel have any experience as an Angel?
- Can give any added value to the company besides the capital he is willing to invest?
- Does your Angel Investor have a good reputation?
- Is he willing to share his connections and resources?
- How patient is he regarding his return on investment
Venture Capitalists, on the other hand, are a group of people (business or companies) usually more interested on a business already running for a longer length of time. Some wait until the angel investor stage is over before they engage on seed funding a business. They are highly motivated in receiving a large amount of returns; usually execute contracts, seats among the Board of Directors, and expects superior performance from the business. Unlike Angel Investors, Venture Capitalist seed investments is huge, and they are easily found. Under some circumstances, they invest on startups as well, but chances are less. If you are still a newbie, it is recommended not to include too many Venture Capitalist on your list of possible investors.
Before choosing a VC, ask yourself
- How much of involvement are you willing to experience in your day-to-day decisions?
- Do you really need a large amount of money for your seed funding?
- Are you giving up on too many of your shares when asking for a seed investment?
Pro tip: Find a venture capital that specialize in seed stage funding
The hybrid option is also a viable option, it has become common in certain areas to see a group of Angel investors create a small budget VC. In this sort of VC each Angel takes an active role inside one or more company as a part-time employee or full-time adviser. Just remember that choosing this route can be a real boost to your startups productivity but in the same time it can feel like “big brother is always watching”.
Is it hard to find investors?
Without going into too much details you can probably imagine that no one is handing out money for free, you must have a product or service that really has potential. You have to work out a detailed plan how you are going to make your investor smile. Remember that every Venture Capital and Angel Investor are different and they may want to hear different things when you pitch them. Do not in any circumstance create one pitch version, customize your pitch according to the people you are going to meet each time, and yes this means you are going to have conduct extensive research before entering any room of investors.
You must bear in mind that whatever you choose among these three investors, they will be given the right to control and run the business too. Since businesses have always been involved with risk, eventually this is just one among the many risks you must be willing to take. At the end of the day you need to choose what fits your startup best, your seed round is an important milestone at the beginning of your journey. Whatever you choose Angel or Venture Capital, you can always pick one now and pick a different one later for your next round of investment.
Bonus tip: If none of the three options stir your interest I recommend looking up “Crowd Funding”. There are Crowd Funding platforms such as Kickstarter and Indiegogo that are very popular which have a track record of helping companies secure an investment in order to create or develop their product. The way it works is very simple: You offer to the world wide web community to fund your project, you set a goal of cash you need in order to make a dream become a reality, and you promise your micro-investors to get the product before everyone or at a discount price if that cash goal is reached. Just keep in mind that if you don’t reach your cash goal you don’t get to keep the money and your project will probably suffer from very bad public relations.
If you are interested in getting to know in more detail some famous Angel Investors and Venture Capitals names, you should visit CrunchBase and look up your role model company or favorite entrepreneurs. There are many companies that where featured on TechCrunch only because the successfully secured a seed investment so I recommend reading some articles as well.
Are you a startup founder looking to secure a seed investment or a founder that already had success with a Angels or Venture Capitals? Please share with us your questions, stories and tips in the comment sections bellow.