Angel Investment vs Venture Capital – Which would you choose?

VC's vs Angels
This morning I read a great post by Venture Spring. Venture Spring is a hugely well respected ‘venture development’ company which “helps Fortune 500 companies innovate like startups” according to their company mantra. The article is about the differences between venture capital funding and funding from angel investors.

Startups are often all too eager to take one option over the other based on their own preconceptions. It’s important to realise that one may be more suited to one type of startup over another (and vice versa. So, understanding the points of difference could be crucial to the way in which you approach your fundraise; and how your company ends up being run down the line. So it’ll be worth your while familiarising yourself with the key points…

You can read the full article on their site here. (It’s a 5-10 min read).

Or, I’ve summarised the key differences for you here and (added in a few that they missed!):

Angel Investors:
– are private individuals investing their own money
– can make quick decisions regarding investment
– can be flexible in the amount they invest
– can provide expertise, contacts and support as well as capital
– can feel personally attached to your business
– can be as hands-off or hands-on as you require
– can qualify for tax breaks like SEIS and EIS
– do not have to be given board positions

Venture Capital Firms:
– are whole companies that invest in startups
– are run by professional investors investing money from corporations, individuals, funds and foundations
– take board positions and have a strong say in how the company is managed and grown going forward
– invest much larger amounts than angel investors
– do not usually invest at seed stage
– generally invest not less than £1million
– take a longer time to make investment decisions and broker deals

What’s your take on the issue? Do you have any experiences you’d like to share? Comment below or hit me up on Twitter

Calling all UK angels to help with a quick survey

Hi everyone,

We’re helping out with a research study on angel groups in the UK.

The study is being conducted by Tiago Botelho and Prof Colin Mason from the University of Glasgow’s Adam Smith Business School, and should allow us to see how our members see syndication in general and how we can improve our network.

We’d be really grateful if any UK angel investors could take the time to complete the survey (it is completely anonymous and should take around 10 minutes).

Here is the link for the survey, which will be open until the end of June:  https://qtrial2014.az1.qualtrics.com/SE/?SID=SV_ehryzeOsCGAS4hT

Also, it would be great if you could share this link with any other UK angels that you know.

Barbara Corcoran’s Angel Investor Checklist

Shark Tank star and angel investor shares the hard-hitting questions she asks entrepreneurs before investing in their business.

Jeff Clavier on how to be an Angel Investor

Leena Rao interviews SoftTech VC Jeff Clavier about the way he became an angel investor and how to become one yourself at Disrupt SF 2011 day three.

We’d love to see you at our next Pitching Event

Top 5 US Angel Investors Over the Last Year

Angel investors have been playing a pivotal role in the American economy for almost half a century, particularly in shaping up the technology industry. Silicon Valley, for instance, has been built and developed by and on the foundations laid by many angel investors. All major tech giants today were start-ups at one point in time.

This infographic shows the Top 5 US Angel Investors of 2013.  Between them, they have invested in more than 700 start-ups so far, out of which more than 150 were in 2013 alone.

Top-5-US-Angel-Investors-Over-the-Last-Year-min-2

2013 Halo Report: US Angel Investment Year in Review

CB Insights, in conjunction with Silicon Valley Bank and the Angel Resource Institute, recently released the 2013 year-end Halo Report. The full 27-page angel investing report includes breakdowns by industry and geography as well as valuation trends. In addition, the report includes a ranked list of the top 10 most active angel groups in 2013.

To download the entire 27-page 2013 year-end Halo Report, login here. The underlying angel investment data is also available and proprietary to CB Insights. (note: the report is available to anyone with a free CB Insights login)

Highlights of the 2013 year-end Halo Report include:

  • Syndicated Deals Produce Larger Investment Rounds.  Overall median deal size in 2013 was $600k, but when angels co-invested alongside other types of firms (including VCs, etc.) that median shot up to $1.7M.
  • High Valuation Deals on the Rise.  While 2013 median angel deal valuations held consistent with last year at $2.5M, the top quartile of angel deals carried valuations of $4.2M or greater. This represents a stronger showing at the top versus 2012.
  • Golden Seeds is #1.  Golden Seeds topped the leader board for most deals completed in 2013 – up from 5th place in 2012. Meanwhile the 2012 winner, New York Angels, fell to the 7th spot in 2013.

A bit of a laugh for everyone…

According to Study, Angel Investment’s Future Is In Group

If you’re an experienced angel investor looking for new opportunities, you may find what you’re looking for by investing with a group instead of individually or with a few friends. According to an article published on Phys.org, the benefits of working as a group include better deal flow, diversified portfolios, due diligence and evaluation, along with social interaction with other investors. If you’re just getting started with angel investing, participating in a group gives you the ability to learn from more experienced investors, helping you limit the risk of going in blind or unprepared.

The Basics of Group Angel Investing  

An angel investor is an individual who provides capital to start-up businesses in exchange for ownership equity or convertible debt. In an angel group, you’re still able to provide capital to start-up businesses, but you do so with other investors as part of a larger group. This provides you with access to better research, evaluation, and due diligence, enabling you to make more informed decisions about where to invest your money without relying solely on online reputation and individual research.

Investing as part of an angel group promotes individual investors to pool their money together, allowing for larger investments over a longer period of time. For businesses, this means access to deeper pockets without the need to include venture capitalists for initial or follow-on funding. Businesses also benefit from a more streamlined and professional funding process, as angel groups have a “gatekeeper” or group administrator who handles the administrative process. Having a group administrator is another benefit for inexperienced angel investors, as well.

Looking for Positive Returns

In an article published on Forbes, research conducted by the Kauffman Foundation found that the average return for angel investors is 2.5 times the initial investment. Unfortunately, the odds of a positive return at all is less than 50 percent. While this type of investment risk is on par with that of venture capitalists, there are better ways to increase your odds.

A diversified portfolio is a great start, a benefit that angel groups can provide. In addition, joining an angel group can give you access to higher quality deals that aren’t available as an individual investor. With over 330 active angel groups in the United States and Canada, finding one to join may not be as hard as you think.

Joining an Angel Group 

With better research, evaluation and due diligence, access to higher-quality investment opportunities, a group administrator to take care of funding and administrative work, you’re probably looking for the sign-up sheet. Keep in mind there are usually requirements for joining angel groups, and yearly investment requirements aren’t uncommon.

Investing as an individual usually allows you to choose the amount of time you want to commit to your investment business. This may not be the case when participating in an angel group. In addition to attending a mandatory screening process, many groups have events you must attend throughout the year.

Before you investment money in a new start-up business, take a look at angel groups in your area that may have access to better opportunities. With more diversified portfolios, group administrators, and the expertise of other investors, you may end up with a better return on your investment.

This article was written by Brian Flax, a freelance writer based out of the Washington, D.C., area. He holds a master’s degree in education technology and a bachelor’s degree in entertainment business. Brian is experienced in a variety of topics, including technology, finance, business management, and what to look for when you’re looking for an article writer.

Angel Investors: The Smart Alternative to Expensive Loans

If you are an entrepreneur seeking funding for a new business, there are a number of funding sources available for consideration. However, not all funding options may be suitable for you. When determining which type of funding is most appropriate, it is important to determine how much control you are willing to give up and what sort of payment schedules are realistic for your new venture. Although many entrepreneurs are hesitant to give up partial control of their new business, angel investors are a smart way to raise capital quickly.

Angels versus Banks

Angel investors can offer on-going support, management expertise, and badly needed capital. However, it is important to acknowledge that these investors will inevitably want to control aspects of the company in exchange for their money. It’s not necessarily a bad thing as these people are typically highly skilled in business with valuable advice to offer. As investors will be seeking a portion of the profits, they will need to protect their investment as well as yours. But as Forbes magazine suggests, this is one of the most difficult decisions an entrepreneur must make.

Business loans are appropriate for those who do not want to give up any control of their business. However, you will need to begin paying back your loan much sooner than if you were partnered with an angel investor. Furthermore, there is much more flexibility with an angel investor to reach favourable terms where as it may be a much larger challenge to convince a bank to offer a better rate. The key benefit of angel investors is that they understand the importance of keeping money in a business during the start-up months and they will not typically seek any remittance until the business is profitable.

Control versus Expertise

Angel investors commonly fund high growth companies in exchange for an equity position. As there can be great risk involved, most investors are not satisfied with moderate success. In many cases, they want at least a twenty percent annual return. As an entrepreneur, it is important that you approach angel investors with a realistic mindset. It may be easier to get money out of a bank rather than an angel as most entrepreneurial businesses will not generate the level of returns desired by the investors without giving up significant equity. However, it is also important to understand that angel investors are also experts in their fields with extensive managerial experience which can provide tremendous value to entrepreneurs.

The mental value of investors found in their networks, experience, and expertise is equally as important as their financial investment. Angels will want to be involved in the business but that can work to your advantage as they are agents of the business that can bring in expertise, sales, and contacts. If you have the privilege of choosing among a variety of angels, it is most practical to select one with proven experience in the industry of your business.

Everyone Needs a Realistic Return on Investment

Angels are most often drawn to companies that can benefit from increased government spending. New companies in infrastructure, health care, energy, or technology often do well. By doing your homework and research in advance, entrepreneurs can determine if their business is suitable for angel investors. If an entrepreneur approaches an angel investor with an outrageous company valuation or unrealistic equity proposal, it will be a waste of time for all stakeholders. However, that doesn’t mean that an entrepreneur should give their business away just to attract an angel investor. It is equally important for the entrepreneur to get a full return on their investment as well. It is wise to value your company at a realistic level to prevent a prospective investor from jumping to the conclusion that they need to justify their investment with means beyond the equity stake. But investors don’t just evaluate the financial aspects or number crunching either. As Entrepreneur magazine reports, angels like to invest in people rather than products.

Benefits of Equity Financing

Funding your business through an equity financing model with an angel investor enables entrepreneurs to cut the bank out of the picture. Rather than spending badly needed cash on loan repayments, entrepreneurs can use the money to continue growing the business. While angel investors may be hard to get, one key benefit is that if the business fails, you are not required to return their original investment which minimises risk to the entrepreneur and eliminates any burden of debt. With banks, you are always required to pay back any loans regardless if the business succeeds or fails. Equity investment is a long-term partnership that involves the investment of not only cash but experience into a new business. It is always important to remember that in the challenging early days of your business, angel investors can offer valuable business advice and assistance that you may not be able to obtain from banks, friends, or family.

Striking the Right Deal with the Right Partner

In certain cases, entrepreneurs may not be partnered with a single angel investor but rather an angel group that involves multiple investors. Angel investments are highly suitable for businesses that are already established beyond the risky start-up period but may need additional capital to expand. Always choose an investor that you believe can provide the right mentorship. When their money is on the line, they are equally motivated to ensure that the business succeeds. Angel groups are often easier to find while individual investors are most commonly found through networking. Angel investors like to see entrepreneurs who also invest some of their own capital in their business. The angel financing industry is huge around the world. In the United Kingdom alone, it is estimated that approximately 18,000 angels invest nearly £850 million annually, according to the UK Business Angels Association. However, in the event that you fail to strike an equity deal with an angel investor, that doesn’t mean that you can’t strike any deal with them. In some cases, investors may not be willing to accept an equity proposition but they may be willing to offer a private business loan independent of any banks. These are beneficial as the terms can be much more flexible. As UK website money.co.uk reports, peer to peer business loans can often result in lower borrowing rates for entrepreneurs than those offered by banks and better access to credit is available than through traditional channels.

Whether you work with a group of angel investors or a single investor, finding the right partner is critical to the success of your business. It is important to identify one with a vision that synergises with your own. Conflicting interests can be a disaster not only to your relationship but to the business as well. Never jump at the first offer of cash as the deal must always be mutually beneficial.

This article was written by Evelyn Millachip.