Sunday, October 21, 2007

Raise money from VC or Angels?

Should I raise money from VCs or angels, all things being equal?

There is no prototypical VC or angel. Instead of pitting VCs versus angels, consider their perceived pros and cons and choose the best available investor.

Angels are perceived to have less money, invest for fun, make their investment decisions quickly, and not ask for control. VCs are perceived to have more money, invest profesionally, make investment decisions slowly, and ask for control.

Seek a VC or angel who has follow-on capital to support companies in tough times, invests like his life depends on it, makes investment decisions quickly, and doesn't ask for control.

Companies that try to raise money from angels often end up raising money from VCs and vice versa. You can't tell where this road will take you until you start walking. Many VCs invest in seed stage companies with favorable terms—and many angels invest with onerous terms.

Finally, raise money from angels if you're hoping to sell your company quickly for $10M, with very little investment, and lots of capital gain for the founders. Most VCs are shooting for $100M+ exits. Either way, seek investors who agree with your definition of victory.

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