RSS at Feed Burner8 Reasons why Angel money is better than VC
Gigaom has a post discussing Lookery’s recent round of funding that was raised entirely from Angel’s. Lookery’s CEO, Scott Rafer (former CEO of MyBlogLog), talked about 5 reasons why getting angel investing is better than VC money:
1) Focus. “Angels can concentrate on the individual strategy of your company, rather than the larger portfolio management strategy a VC must bear in mind.”
2) Deal Terms. Angels generally don’t demand as much in liquidation preferences and other deal terms.
3) Future Funding Rounds. You will generally have more control over future negotiations in getting additional funding.
4) Transactional Control. “You won’t have to seek permission from investors who aren’t on your board or worry about what a VC needs to have happen vis á vis managing his limited partners… Angels have no LPs, so their agendas tend to be far more transparent.”
5) Exit. “Angels aren’t compensated in ratios. Angels get 100 percent of the profit they generate with their investment in your company. A VC only gets a fraction of the ‘carry’ generated on your deal. This is one reason a VC might be motivated to urge you to sell bigger.”
Rob Conway, a well known “super angel”, follows up with 3 more reasons why Angel money is more attractive than VC money.
1) The due diligence process will be less rigorous since angels are acting in their own interest and not investing OPM (other people’s money).
2) Angels are generally more vertical specialists than compared to VC’s.
3) “Angels have one-degree of separation from people in their professional network — not two, or three, or four. But because angels tend to be operational types, the business relationships they bring to the table are personal, not transactional. ”
Finally, Allan Leinwand, follows up with a counterpoint on why Entrepreneurs should prefer VC money over angel money. He claims VC’s will be better able to stick with the startup over the long term, if things don’t work out quickly. However, Tom Perkins, of Kleiner Perkins Caufield & Byers, says they put companies in the “ICU” if they are not performing well. They either see if they can get out of it or they shut off everything right away.
on October 3rd, 2008 at 12:36 pm
A fantastic summary of the pro’s and con’s. However, I feel that in most circumstances the nature of a business’s requirements will largely determine the suitability of which route to go down. The desired outcome of the equity investment can not be considered until that initial suitability issues is resolved.
on January 13th, 2009 at 8:14 pm
I think it comes down to a matter of long term exit strategies and liquidation for seed stage round investors.
With Angel Investors you have more flexibility in the kinds of securities you can initially offer and with follow on rounds.
With VC, they dictate the terms but have an almost linear pipeline to either an acquisition or exit IPO
Yuri Rutman
www.noci.com
http://section181.blogspot.com/
on April 7th, 2009 at 3:57 am
I found your blog on google and read a few of your other posts. I just added you to my reader.
on September 2nd, 2009 at 10:03 am
I just added you to my reader. With Angel Investors you have more flexibility in the kinds of securities you can initially offer and with follow on rounds. I feel that in most circumstances the nature of a business’s requirements will largely determine the suitability of which route to go down. The desired outcome of the equity investment can not be considered until that initial suitability issues is resolved.
on January 8th, 2010 at 10:17 pm
I’ve been giving a lot of thought to this lately, and I think it’s something that more people should be focusing on. We can’t expect to get anywhere if we just keep our heads buried in the sand.