Entrepreneur Magazine – VC or Angel Money

My monthly column in Entrepreneur Magazine is up (and on the newsstands).  This month’s article is titled VC or Angel Money? and has some suggestions for how to think about whether you should be approaching VC’s or Angel’s when raising a round of financing.

  • Good advice. I might add another comment — consider talking to Angels that have expertise in the area that your are focusing your company in. They will be more likely to appreciate what you are doing.

  • Great article and an important topic. I think it's usually pretty easy to determine whether angel or VC financing is best for a specific company. The tests I think are most important are summarized at: http://www.angelblog.net/Is_Angel_Or_VC_Financing…I hope this is helpful to your readers.

  • Reflecting on my first start and dealing with the 'being new to the game' issues, I'd add a thought here:
    Getting VC feedback on the idea early (before proof of concept), regardless of investment interest, is very worthwhile in terms of the LT potential. While angels are domain experts and are far better at understanding the problem / solution, they typically lack the investment track record to offer the same kind of feedback VCs do since they evaluate concepts for a living.

    That said, I agree with Umair that in large part, many VCs have lost their way in terms of understanding risk / reward for these kinds of investments and use the excuse that the idea's potential isn't big enough as a crutch :

    I'd be interested in your thoughts on his post.

    • I think the generalization about VCs is ridiculous.  It’s entertaining, though provoking, and stimulating but ultimately is just a rant rather than a fundamentally profound and well reasoned argument about how VCs have lost their way and failed society, the economy, and the universe.  That said, I enjoyed reading it as it has plenty of nuggets that apply to many VCs!

  • – Can often wait for up to a decade before they exit an early investment (the average lifetime of typical VC funds is now about 13 to 14 years)

    – Need to control the important financial decisions in their portfolio companies

    My main goal is to fuel the debate, to explore better ways, to help young entrepreneurs understand what’s best for their companies. Blogs like yours, and discussions like this, have moved entrepreneurship ahead farther than any other single factor since Stanford.

    I’d welcome an opportunity to continue this fascinating and valuable discussion with you. Please tell me what you found “ridiculous”. Thanks again. (sorry this rant got so long)

    • My “ridiculous” comment was aimed at the generalization to all VCs of Umair’s post.  I’m having trouble getting your link to your post from the comment – just type the URL and the comment system should take care of the rest.  I’ll take a look at it.

  • Brad – my aplogies on the link. This is the post I was originally referring to:
    <a href="http://www.angelblog.net/Is_Angel_Or_VC_Financing_Best.h…target="_blank">http://http://www.angelblog.net/Is_Angel_Or_VC_Financing_Best.h...target="_blank">http://<a href=”http://www.angelblog.net/Is_Angel…” target=”_blank”> <a href="http://www.angelblog.net/Is_Angel_Or_VC_Financing_Best.h…” target=”_blank”>www.angelblog.net/Is_Angel_Or_VC_Financing_Best.h…

  • Brad – my aplogies on the link. This is the post I was originally referring to:

  • Brad – my aplogies on the link. This is the post I was originally referring to:

    • I read through your post and think it's generally on the mark.

  • Brad – I am glad you found my post stimulating. I think you’d agree that our economy needs more entrepreneurs and more successful startups. I agree with your point: “VCs have lost their way and failed society, the economy, and the universe.” Can you blame me for ranting a bit?

    There are many excellent venture capitalists. Some are my friends and ex-partners. From your writing and reputation, I have no doubt you, and the team at Foundry, are exceptional VCs.

    I co-founded a traditional venture capital fund. After I learned what how it really worked, I sold my stake and started an angel fund. I did that so I could again invest a few hundred thousand in promising startups. I am very impressed that Foundry makes investments that small.

    You are of course correct that it can be dangerous to generalize and I do not want to include exceptional funds like yours that are willing to invest early and help young startups. But I do believe there are generalizations that can reasonably be made about traditional, large, institutional VC funds. (continued below – the rant filter cut me off)

  • These generalizations provide the insight we all need to understand why they don’t work anymore. And will hopefully stimulate the debate to accelerate the evolution toward more sources of capital that do work, that do add value, that are aligned with the founders of early stage companies.

    For an example, I think it’s fair to generalize about the aspects of traditional VC funds that are determined by ‘the math’.

    I did not appreciate how the math behind a VC fund constrained their activities until I had been a VC for several years. When I was an entrepreneur I had no idea. I think it’s fair to generalize that traditional large VC funds:

    – Need to invest more than several million dollars in a company (to have any hope of moving the needle)

    – Need to hold on for an exit in a successful company that yields at least 10x on an A round (which almost always means an exit over $100 million)

  • Brad – thanks very much for having a look. I really appreciate it.

  • @ Brad
    You always post many valuable posts here, i gain my knowledge always.

  • A very good article, thanks for share.

  • len.williams

    Very useful article. It is very important for an entrepreneur to make a clear distinction between the features and advantages of each funding source, including the stage preferred. Probably more companies would find it easier to raise money if they were aware of these differences. What is interesting about angel investors-and also useful for startups- is that most of them are also motivated or have reasons for funding companies other than high potential financial returns. They will also provide their expertise gained throughout the years and what could be of more help for an inexperienced entrepreneur who would otherwise have to deal on his own with some not so bright aspects of the business process.

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