November 16, 2010
The difference between venture capitalists and angel investors
Getting funded is a complex, long-term process and in order to be successful you need to learn the exact steps you should follow to make it happen fast and easy.
In the following ten newsletters, I will teach you how to raise capital from venture capital firms or angel investors.
There is one thing you know for sure and that is that you need funding. The rest- how to find VCs, how to approach them, present your business and negotiate the funding terms- you need to learn in order to be successful.
First things first. Letâ€™s see what the difference between venture capitalists and angel investors is and which one is right for you.
Venture capitalists will usually invest more money (more than $1 million), will be very analytical and prefer companies, which show solid proof of growth and achieve more operational milestones. These are professional investors, which make a living out of this and do not invest their own money. They invest money raised from corporations, pension funds, private wealthy people or other sources and are especially interested in the return of investment and exit strategy. They will want one or more board seats and will be actively interested in growing the business.
An angel investor is different because he will invest his own money, usually not more than $500000 and it usually makes the investment because he likes and trusts the founder and the business. More often than not, he will not want a board seat and some of them are not that interested in the return of investment but just want to see that his money is well spent. Angels investors are very different so they can be more or less involved in the investment, depending on their experience and personality but will usually advise the entrepreneur and help him with networking and other resources. The rules and the process of being funded by an angel investor are much more relaxed than with venture capitals but you will have access to small and limited amounts of money.
Consider this when determining which investor is best for you.
The next step is to understand what determines an investor to allocate funding for your company.
Venture capitalists will be interested in how profitable is your current business but most importantly how much it can grow and how profitable it can become. Things like the existence of a profitable demand for your product or service, barriers of entry (things you can benefit from but without which the competition is in disadvantage), what is you competition and how are you better than they are or what is the painful need your product or service fulfills. It is important to have an answer to all these questions so you have to do a very thorough job when you are doing your market research.
All this information should go in your executive summary and in your teaser email, two very important tools in the process of getting funding which we will discuss in a future newsletter.
Stand by tomorrow for the second newsletter in which we will talk about how to get a venture capitalist interested in your venture.
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