Have you ever thought of raising Venture Capital or Angel Investment? Follow this lesson to understand how these two funding options really work. Discover all the advantages and disadvantages of each of them and make the right choice for your startup!
Venture Capital (VC)
A form of private investment into startups. A venture capitalist is a single investor, while a VC fund is an organized company.
What is a VC?
A Venture Capitalist (or VC) is a private financier willing to invest in early-stage or growing businesses that have a high potential to succeed in scale, in exchange for a share of the company’s equity. Venture capitalists generally merge their money together into a fund controlled by a so-called VC firm. Basically, such a firm (or fund) manages the money of many individuals and controls where the money will be invested. Usually, they do so in businesses or ventures that others may consider too risky for investment (for example, because they are still in their early stages). However, despite the high risk for VCs in investing in such companies, the possible return they might get in case of success of such business is much higher!Pros and Cons of VC Funding
There are many pros in choosing VC funding to acquire capital.
VCs provide high amounts of capital in order for you to grow faster (going from 100000 $ for pre-seed startups to more than 20 million dollars for medium-size businesses), so you won’t have to worry about your company’s living costs nor, generally, about additional assets for the growth of your business.
However, there are also certain cons to this kind of investment.
Check Out These VC Funds
To help you find VC funds that you might be interested to pitch your startup to, here are some useful links:
- Go through this report by CB Insights, created in collaboration with The New York Times, on "The Top 100 Venture Capitalists"
- Read this article we have created for you about "7 VCs Investing in Female Entrepreneurs You Should Know"
Angel Investment
Another type of funding involving private investors. Often these are separate individuals, previously successful business people managing their own money.
What is an angel investor?
So-called “angel investors” are high-net-worth individuals who want to invest in startups and small businesses. They do so either independently or through crowdfunding platforms or an angel funders’ network. They either invest in you just once to kickstart your company or grant prolonged funding to nurture and grow it over time. Business angels, like VC funds, typically receive in exchange a share of equity in the company.
Pros and Cons of Angel Investment
There are many pros in cooperating with angel investors while looking for funding.
Generally, angel investors bring along precious experience in the field you are growing – both in terms of business connections and valuable knowledge – which might eventually ease your way up to success.
A great thing about angel funders is that they can be found everywhere, online and offline: they could be part of your circle of friends or family, or of some groups that are active on multiple platforms and frequently explore the opportunities that may be available in the field you want to work in.
Angel funders generally require simpler paperwork in their agreements (such as the SAFE agreement form, introduced by Y Combinator).
Nonetheless, there are certainly cons in selecting this type of funding.
Build Transparent Communication!
We know that working with private investors like VC firms and angel investors can be hard. However, such obstacles can be overcome by clear and transparent communication with your investors. Build a common vision with them on how you imagine the growth of your startup idea, and share your experience with fellow entrepreneurs in order to learn how to get along in the path you have chosen.
