Hey, welcome back. So startups who are looking to raise funding may not be too picky in terms of where they get their funding, but as you're looking at both venture capitalists and angel investors, it's important to understand the difference. In this video, we're going to look at some of the differences between angel investors and venture capitalists, where they get their money, and what it can mean for you and your business. Let's take a look.
So first, let's start off with angel investors. Angel investors are most typically individuals. They're oftentimes either retired executives, CEOs, people who've had successful companies, and they're most typically investing their own money. This means that there aren't other people that they need to check with in terms of their investment, and they don't have other expectations in terms of how long it may take for them to get their money back.
Contrast this with venture capitalists. Venture capitalists typically raise money from... other people and those other people are typically called limited partners or LPs. LPs write large checks to venture capitalists typically in millions of dollars. Because VCs are investing other people's money they typically have to set expectations in terms of how long it'll take to get that money back and so these funds are set up to return that money in that amount of time.
Both angel investors and venture capitalists have expectations that startups will grow and be successful. But the rate of growth and that level of success may be slightly different. These investors also invest in different stages of companies. So an angel investor is typically investing in very early stage companies.
These are companies that are sometimes pre-revenue, pre-product. They may be someone in a garage with an idea, maybe a little further along where they have some idea, some progress, maybe even an MVP or a minimally viable product. But they don't have a ton of customers.
They don't have a ton of traction. Venture capitalists on the other hand will more typically invest further on in the growth of a company. Typically that company has some customers, some traction, and more importantly they're writing different size checks. Angel investors are writing checks somewhere in the range from $5,000 to $50,000.
Most typically venture capitalists will invest millions of dollars into a company and these are invested in what are called rounds. The first round is alphabetic. It's called an A round and then a B round and a C round. In each round, venture capitalists are typically looking for 20 to 30% equity in a company. Because venture capitalists are investing larger sums of money, they also have expectations of having a board seat.
And having a board seat means they have influence over the control of the company and they may be able to fire you as a CEO. So just be aware of what board control is and what that might mean for the future and direction of the company. At the end of the day, the board is your ally and they want you to be successful. But if they don't agree with the direction that you're going and you don't own the majority of your company, they can direct your business in a different direction.
Angel investors typically don't take a board seat and they don't ask for control most typically. In both cases, angel investors and venture capitalists want the company to be successful. but they may do that in different ways.
If you're a startup, you really need to do some homework and figure out how much money you need to raise. If you're looking to raise less than $100,000, you probably don't want to talk to venture capitalists and they probably don't want to talk to you. Angel investors are probably a better match for you. If you're looking for more than a million dollars, then take a look at my other video on pitching to venture capitalists, because that may help you as well.
At the end of the day, both venture capitalists and angel investors are looking to help your company grow and finding the right fit isn't just money, it's really finding the right partner for your business. You want to make sure that the relationship you have with your venture capitalists or with your angel investors is a positive one. These connections can really open doors for your business and unlock growth potential. So really think about who do you want to call when you have a problem? Who do you want to really be working with over the long term?
Your relationship with your investors will often last many years, so you want to make sure you have a positive relationship. It isn't just about money, it's who can really open connections, who can open doors, and who can be a really positive ally and resource for you as you grow your business. If you want to build something awesome, you need a great team, and that means both investors and employees, people who are really rallying behind you and giving the right resources to be successful. So if you're interested in angel investing and why I became an angel investor, hit the I up there in the corner and learn more.
And if you're an entrepreneur interested in startups, technology and design, hit subscribe and join me for the journey. Thanks so much. I'm Greg Reyes.