VC vs Angel: Easy Funding Steps 

Easy Ways to Get Money Early On: Understanding Big Money Groups and Rich Individuals

So, you’ve worked super hard to build your new company. You have a really cool product or service, and you have a team of people who believe in it. You started with your own money, but now you need more to grow bigger and get more customers.

You’ve probably heard about “venture capital” and “angel investors.”

People talk about them like they’re the same thing. But are they really? Is one way better for your new company than the other?

Should you be trying to talk to big money companies in fancy offices or rich people who like to help new businesses? 

The truth is, even though both venture capital and angel investors give money to new companies, they are different ways of getting that money. They have different rules and can change your company in different ways.

If you don’t know the difference, you could waste a lot of time talking to the wrong people and maybe even hurt your company.

Imagine spending months getting ready to talk to a big venture capital company that only gives money to companies that are already making a lot of sales, but your company is still just starting. Or think about getting money from a rich person who knows a lot about a business that’s totally different from yours.

These things show why it’s important to know the difference between these two kinds of money. Understanding the initial steps in fundraising is crucial for any startup founder. 

So, here’s the big question: How do you know if you should try to get money from a venture capital company or an angel investor for your new business right now? 

Knowing these things isn’t just about getting cash; it’s about finding the right partner who believes in what you’re doing, understands your business, and can really help your company grow.

This simple guide will take you through the important things you need to know about getting money early on. We’ll look closely at each type of money, what they want, and what kind of people they are.

This will help you answer that first big question and figure out the best way to get the money your new company needs to do well. 

Steps To Understanding Venture Capital vs. Angel Investment: 

Step 1: Where the Money Comes From 

• Venture Capital (VC): Venture capital companies use money that many people and groups put together Link to: Investopedia – What is a Venture Capital Fund? like big savings accounts for companies or money from universities. These companies have to make sure they make a lot of money for the people who gave them the money. This makes them think carefully about who they give money to and what kind of returns they want. Understanding the structure of VC funds is key to knowing their motivations.

• Angel Investor: Angel investors are rich people Link to: SEC – Accredited Investor who use their own money to invest in new companies. They are often people who have started their own successful businesses, been high-level workers, or are experts in their fields. They like to help new ideas grow. Many angels are driven by a desire to support innovation.

Step 2: How Much Money They Usually Give 

• Venture Capital: VCs usually give bigger amounts of money, like from $1 million to $10 million or even more Link to: Crunchbase – Venture Capital Funding Stages when a company is just starting to grow. They often join with other VC companies to give even more money together. These larger rounds help fuel significant growth.

• Angel Investor: Angels usually give smaller amounts of money, like from $25,000 to $500,000 for each person. Sometimes, angels get together in groups Link to: AngelList – Angel Groups to put in more money and check out companies together. This pooling of funds allows angels to participate in larger deals.

Step 3: What Kind of Companies They Like to Invest In 

• Venture Capital: Most VCs like to give money to companies that have already shown that their idea is working, have a clear way to make money, and can grow really big. They look for companies that can become very successful in a large market. VCs often focus on scalable business models. 

• Angel Investor: Angels are more likely to give money to companies that are very new, sometimes even before they have made much money. They are willing to take a bigger chance on a good idea and a strong team. Early-stage innovation is often the target for angel investment [Citation 6: National Institutes of Health – Small Business Innovation Research (SBIR) Program (Illustrates early-stage funding needs)]. 

Step 4: How Carefully They Check Out Your Company 

• Venture Capital: VCs check out your company very carefully Link to: Medium – Venture Capital Due Diligence Checklist. They look at your money situation, how big the market is, who your team is, your technology, if you own your ideas, and who your competition is. This can take a long time, sometimes weeks or months. Thorough due diligence helps VCs mitigate risk.

• Angel Investor: Angels usually don’t check things out as deeply as VCs, and it’s usually faster. They still look at important parts of your business, but they might trust their gut feeling about you and your idea more. However, due diligence is still a crucial step for angel investors.

Step 5: How They Make Decisions 

• Venture Capital: At VC companies, a group of people Link to: Maveron – How Venture Capital Firms Make Investment Decisions needs to agree before they give money. This can sometimes make the process take longer. Investment committees play a vital role in VC decision-making.

• Angel Investor: Usually, one angel investor makes the decision Link to: Forbes – 5 Things Angel Investors Look For In A Startup. If they are part of a group, they will talk about it, but the final decision often comes down to each individual. This can be quicker. Individual conviction often drives angel investment decisions.

Step 6: What Kind of Help They Offer Besides Money 

• Venture Capital: VCs often have a lot of experience helping companies grow. They can give good advice, help you make smart plans, and connect you with important people they know Link to: First Round Review – The Value VCs Bring Beyond Capital. They might also join your company’s board of directors to help guide you. This “smart money” can be invaluable.

• Angel Investor: The help you get from an angel investor depends on who they are. Some angels are great mentors and advisors Link to: Wharton – Why Angel Investors Can Be Gold for Startups because they have started their own successful businesses. Others might just give you money and not be very involved. But a good angel can give you important early help. Mentorship is a key non-financial benefit of angel investment.

Step 7: What They Want in Return 

• Venture Capital: VCs mainly want to make a lot of money Link to: Investopedia – Return on Investment (ROI) for the people who gave them money. They want to invest in companies that can become very valuable and be sold for a lot of money later on. High-growth potential is a primary focus for VCs.

• Angel Investor: Angels also want to make money, but they might also have other reasons for investing. They might want to help new businesses, be part of something new and exciting, or use their knowledge to help others succeed. Supporting entrepreneurship is often a strong motivator for angel investors.

Step 8: How They Make the Deal 

• Venture Capital: VCs usually have more complicated deals Link to: Cooley GO – Venture Financing Documents to protect their bigger investment and make sure they get the returns they want. These deals can include special rules about who gets paid first if the company is sold. They also look very closely at how much your company is worth. Understanding term sheets is crucial when dealing with VC funding.

• Angel Investor: Deals with angels in the very early stages are often simpler Link to: FundersClub – Understanding SAFE Notes. How much they think your company is worth might be more about how much potential it has rather than proven numbers. But if many angels invest together, the deals can become more like the ones VCs make. Convertible notes and SAFEs are common early-stage investment vehicles.

Step 9: Your Relationship with Them 

• Venture Capital: Even though VCs want to have a good relationship with the people who start the companies they invest in, it can be more formal because they have a responsibility to the people who gave them the money. Clear communication is key in the VC-founder relationship.

• Angel Investor: Your relationship with an angel investor, especially if they help you a lot, can be more personal. Trust and believing in each other are very important. Personal connection can be a significant factor in angel investment.

Step 10: What Happens If You Need More Money Later 

• Venture Capital: VC companies often have more money available Link to: CB Insights – Global Venture Capital Funding Trends to give you in later rounds if your company is doing well. This can really help you grow. Follow-on funding is a key consideration when choosing investors.

• Angel Investor: Individual angels might not have a lot of extra money to give you later. If you need a lot more money, you might have to find other angels or try to get money from venture capital companies. Building relationships with multiple potential funding sources is important.

Final Thoughts: 

Navigating how to get money early on for your company is a really important skill for anyone starting a business. Knowing the differences between venture capital and angel investors helps you find the right kind of money at the right time.

Remember, one way isn’t better than the other. It just depends on what your company needs right now and what your goals are.

Do your homework, talk to both kinds of investors, and make sure you have a good plan to show them why your company is a good investment. In the end, you want to find not just money, but also people who can help you with their knowledge and connections so your company can succeed. 

Frequently Asked Questions (FAQs): 

1. What’s the main difference between a VC and an angel investor? 

1. The main difference is where their money comes from. VCs use money from big groups, while angels use their own money. Link to: Investopedia – Venture Capital 

2. When should I look for money from angel investors? 

1. You should usually look for angel money when you are just starting out, maybe have an idea or a very early product, but haven’t made much money yet. 

3. When is a good time to talk to venture capital companies? 

1. It’s usually better to talk to VCs when your company has shown that people like your product, you have a way to make money, and you can grow quickly. This is often after the angel stage. 

4. Is it easier to get money from angels than VCs? 

1. While the process might not be as formal with angels, it’s not always “easier.” Angels still want to see a good business idea. However, they might be willing to take a chance on newer companies. 

5. What kind of profit do angel investors expect to make? 

1. Angel investors want to make money on their investment, but they also often want to help new businesses and use their experience. They usually hope to see a good return on their money within 5 to 10 years. 

6. How much of my company will VCs and angels want? 

1. The amount depends on how much money you get and how much your company is worth. But early investors will usually want a good part of your company so they can share in the success. 

7. Should I talk to angels or VCs first? 

1. Generally, it’s a good idea to talk to angels first to get your company started and show some success. Then, when you need more money to grow faster, you can try to get venture capital. 

8. How can I find angel investors? 

1. You can find angel investors by going to events where business people meet, using online websites, joining angel groups, and getting introductions from people who know investors. Link to: National Angel Capital Organization (Canada) – Find an Angel Group 

9. What should I include in my presentation for angels and VCs? 

1. You should talk about the problem you are solving, your product, the market, your team, and your money plans. For VCs, you should really show how you can grow very big. For angels, you might focus more on the early potential and your team. 

10. Will I lose control of my company if I get money from VCs or angels? 

1. While you will likely have to give up some ownership and maybe some say in how the company is run, the goal of reputable investors is to help your company succeed, not take over. It’s important to make sure the deal is fair to you. 

Citations: 

1. Investopedia – Venture Capital: https://www.investopedia.com/terms/v/venturecapital.asp 

2. Angel Capital Association – What is an Angel Investor?: https://www.angelcapitalassociation.org/data/aca/media/aca_public/what_is_an_angel_investor.pdf 

3. Gust – Angel Investing Groups: https://gust.com/angel-investing 

4. National Venture Capital Association – Due Diligence Process: https://sequoiacap.com/article/the-2022-guide-to-seed-fundraising/ 

5. Forbes – The Value of Angel Investor Mentorship: https://www.forbes.com/sites/allbusiness/2016/04/19/the-value-of-angel-investor-mentorship/?sh=4b3721c829c9 

6. Investopedia – Limited Partner (LP): https://www.investopedia.com/terms/l/limitedpartner.asp 

7. Entrepreneur – How to Find the Right Angel Investor for Your Startup: https://www.entrepreneur.com/starting-a-business/how-to-find-the-right-angel-investor-for-your-startup/275569 

8. Harvard Business Review – What Angel Investors Want: https://hbr.org/2013/01/what-angel-investors-want 

9. National Venture Capital Association (NVCA) – About Venture Capital: https://nvca.org/about-venture-capital/ 

10. TechCrunch – Understanding Venture Capital Deal Terms: https://techcrunch.com/2010/07/25/understanding-venture-capital-deal-terms/ 

11. Investopedia – What is a Venture Capital Fund?: https://www.investopedia.com/terms/v/venturecapitalfund.asp 

12. Angel Capital Association – Who Are Angel Investors?: https://www.angelcapitalassociation.org/data/aca/media/aca_public/who_are_angel_investors.pdf 

13. TechTarget – Venture Capital Funding: https://www.techtarget.com/searchcio/definition/venture-capital-VC-funding 

14. Investopedia – Angel Investor Groups: https://www.investopedia.com/terms/a/angelgroup.asp 

15. Harvard Business Review – The Lean Startup: https://hbr.org/2013/05/why-the-lean-start-up-changes-everything 

16. National Institutes of Health – Small Business Innovation Research (SBIR) Program: https://seed.nih.gov/small-business-funding/ 

17. Deloitte – Venture Capital Due Diligence: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/mergers-acquisitions/us-ma-venture-capital-due-diligence.pdf 

18. U.S. Securities and Exchange Commission – Ask Questions: https://www.investor.gov/introduction-investing/investing-basics/ask-questions 

19. Emerald Growth Partners – Venture Capital Investment Process: https://www.emeraldgp.com/how-venture-capital-firms-work/ 

20. Small Business Administration – Find Funding Through Angel Investors: https://www.sba.gov/funding-programs/investors/angel-investors 

21. Investopedia – Smart Money: https://www.investopedia.com/terms/s/smartmoney.asp 

22. SCORE – Finding an Angel Investor: https://www.score.org/resource/finding-angel-investor 

23. National Venture Capital Association – What is Venture Capital?: https://nvca.org/about-venture-capital/ 

24. Kauffman Foundation – Understanding Early-Stage Investors: https://www.kauffman.org/wp-content/uploads/2019/12/understanding_early_stage_investors.pdf 

25. Y Combinator – Startup Fundraising: https://www.ycombinator.com/library/E0-startup-fundraising 

26. Harvard Law School Forum on Corporate Governance – Term Sheets in Venture Capital Financings: https://corpgov.law.harvard.edu/2018/03/24/term-sheets-in-venture-capital-financings/ 

27. Investopedia – Convertible Note: https://www.investopedia.com/terms/c/convertible-note.asp 

28. Andreessen Horowitz – Guide to Startups: https://a16z.com/startup-guide/ 

29. The Guardian – How to Impress an Angel Investor: https://www.theguardian.com/small-business-network/2014/jun/23/how-to-impress-angel-investor-funding 

30. TechCrunch – The Importance of Follow-On Funding: https://techcrunch.com/2021/08/28/the-importance-of-follow-on-funding/ 

31. Fundera – How to Find Investors for Your Small Business: https://www.fundera.com/blog/how-to-find-investors