There are substantial differences between angel investors and VCs from a practical point of view, even if both will get you access to capital:
- Angels rarely do due diligence, VCs almost always do.
- Angels tend to look much more at who else is investing in the company, almost never want to be 'alone' or 'first'.
- Also they are typically much less experienced as investors and having them on-board can be a pain, especially when you're doing a start-up outside of their field of expertise
- VCs investment tends to come with some visibility perks
- it is usually easier to get investment from a group of angel investors than it is to get investment from a VC
You are certainly right. But that's a kind of insider explanation from within our world.
If you're explaining the economics of computerland in broad strokes, there's no significant distinction to make between angel investment and VC. The two groups intermingle, they fund the same projects (with the same expectations of risk and growth), and they even move in the same social circles.
> But that's a kind of insider explanation from within our world.
Good point, I will have to work harder on divorcing myself from that. It's hard though. For the purpose of founders that are relatively in-experienced the two groups appear similar enough that there is little to no outward difference. That viewpoint is worth correcting.
All of the angel dynamics you're talking about here are premised on a trajectory that takes angel-funded companies through VC rounds. If there wasn't a presumption that N out of K portfolio companies would get an A round, angels wouldn't invest this way.
For the most part yes, but it's not an iron-clad law, I've seen angel funded companies do much larger angel rounds later on bypassing the VCs completely up to an exit.
Sure. But you don't think that the terms you got for your company benefited from the broader angel market's expectations about how most companies will achieve liquidity (almost all of them through VC)?
- Angels rarely do due diligence, VCs almost always do.
- Angels tend to look much more at who else is investing in the company, almost never want to be 'alone' or 'first'.
- Also they are typically much less experienced as investors and having them on-board can be a pain, especially when you're doing a start-up outside of their field of expertise
- VCs investment tends to come with some visibility perks
- it is usually easier to get investment from a group of angel investors than it is to get investment from a VC