What are the key differences between Angel Investors and VCs?
While Angels and VCs have many similarities, they also have a number of differences between them that founders should be aware of:
Angels are likely to invest at a much earlier stage – they invest at the (pre) seed-stage while VC investments generally range from Seed to Series B with the exception of a few outliers investing earlier/later. To put it simply, Angel investments are usually in the thousands while VC investments are usually in the millions.
Since Angels are investing smaller amounts at earlier stages, they are less likely to perform extensive due diligence and demand that the business supplies them with the same information a VC would ask for. As a reminder, VCs are investing other people’s money so they are required to be thorough and mitigate the investment risk as much as possible. They will expect detailed business information including a business plan, financial statements, financial projections, marketing plans, and market analysis. VCs will require a much larger time frame to invest. Angels, on the other hand, can be as flexible as they like which is why they are often sought out by businesses that are still at the very early stages. A business that has already developed beyond this may prefer to focus on VCs as they are able to provide more capital in addition to operational expertise and industry connections.
After investing, VCs might require that you establish a Board of Directors and give them a seat on it. They may request additional changes to your business structure as well while Angels are less likely to do so.
Many Angel investors also act as mentors to businesses they invest in. They might offer suggestions about running your business, help you form connections with lawyers, accountants, and banks, and help with decision-making. Meanwhile, VCs are more likely to provide networking and operational support as opposed to personal mentorship and guidance. Although this varies from firm to firm.
Who to approach and when
Whether you want VCs or Angel investors to invest in your business, you need to be prepared. You will need to perfect your investment pitch, check out Runway Pro for more insight and advice on pitching!
Before you pitch to a VC or Angel, it is critical that you do your research and find investors most suitable for your business. To save you spending hours on research, we have put together an Angel Directory and VC Directory!
For a pre-revenue business with limited traction, consider approaching Angels for investment. If you feel you need mentorship and help with your personal network, be sure to identify Angels that are able to provide this level of support for you before you approach them for investment. If you think your business has already hit these initial growth milestones and you are ready for institutional capital and more hands-off operational support then VC investment might be right for you.
In both cases, think very carefully about how much you are giving away and at what price, as well as who you are bringing on board. These decisions will have enduring consequences for your business.