Angel vs. Venture Investors: Funding Your Business

Angel vs. Venture Investors: Funding Your Business

At the March 20, 2014 Emerging Company Roundtable Session, Jay Reilly of Saul Ewing moderated a discussion about funding issues facing start-ups and emerging companies. Thought leaders for the discussion were John Backus, founder and managing partner of New Atlantic Ventures; and Panos Anastassiadis, former chief executive officer for Cyveillance.

Key Takeaway Points

Raising money is hard. The first step is often to tap the friends and family circle, but be mindful of a few things.

  • Once you’ve accepted money from friends and family, you’ve got pressure to produce and not let them down. 

  • Future investors, especially institutions, have ways of squeezing out the economic ownership of early investors who do not have the wherewithal to continue investing.  

Not that it will be easy, but it will be easier to find angel investors than venture investors

  • There is a huge funnel leading from angel to venture investment.  Over 60,000 companies received angel funding in 2013, and only 1,809 received venture funding. 

  • If you are successful in catching the ear of a venture capitalist, the question they’ll be asking themselves as they are talking to you is, “Is this the one new investment that I want to make this year?”  

Investors are more interested in funding a team than an idea.  The idea is important, but the team is the differentiator. 

Angel investors are price takers, whereas venture investors tend to be price makers.  Angel investors are more likely to take the valuation and terms offered to them. Once a VC has decided to invest in your company, they’ll generally dictate what their view of your valuation is and impose deal terms.  

You want to achieve balance with your investors.  

  • Managing the relationship with your investors takes a lot of time. 

  • If you have just one investor, he/she will call the shots. 

  • If you have too many investors, you will spend too much time managing them and building consensus. 

  • Look for investors with good expertise, who provide solid advice and have sufficient time and resources to help you. 

Venture investors are generally looking for companies that already have a live product and revenue traction, already have existing investors, and solid entrepreneurial teams. 

  • The ability to raise money is a measure of success.

  • They want to invest in companies that are well positioned to attract the best talent.  

  • Geographically, this is increasingly in urban centers such as San Francisco, Cambridge, New York, and downtown Washington, DC. Where a company starts, and where it relocates to expand, may be different. 

There are a few things entrepreneurs can do that are red flags to a potential investor. 

Investors don’t like it when you use a broker to find funding.  If you cannot find your own funding and sell an investor on your company, you’re not going to be able to sell your product and find revenue. 

  • Don’t send generic communications.  Take the time to personalize your message and make it relevant to the person you’re targeting.

  • A conference setting is not the best forum to pitch an investor on your company--they’ve often got their own objectives, and an impromptu pitch may not be catching them at a time when they’re receptive. 

Tips on finding investors:  

  • If you can get debt, take it.  Over the long run, it will be cheaper than equity.

  • Work your connections – LinkedIn, friends and family, board members, accountants, lawyers, and partners and service providers.  

  • Research similar companies and see who their investors are. 

  • Personalize your e-mail communications.  You will have, at most, 15 seconds to make an impression, forge a connection and differentiate yourself. 

  • If you get a meeting with an investor that is not the right fit, get a few more names from the investor of others in their network that might be a better match.

  • Don’t be offended or discouraged if investors don’t want to meet with you. Keep trying. 

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