The Simple Guide to VCs, Angels, and Funding Rounds

Published on May. 22, 2018

Angel Investor vs VC

The most important distinctions between angels and VCS are:

  • Angels invest their own money; VCs invest other people’s money.
  • Angel investment is much more likely to be in hundreds of thousands than in millions of dollars.

  • Angel Investors

    Angels are individuals (or groups of individuals banding together) who invest their own money in a business.

    Angels generally invest less money than venture capitalists. If a startup is seeking $1 million or less), an angel investment is the best fit.

    Angels are often entrepreneurs or “retired” entrepreneurs who have experience starting, running and growing businesses.

    The degree of involvement angels expect to have in your business varies. Some assume they’ll be actively involved, while others prefer a hands-off approach.

    Angels, of course, want to make money on their investments, and expect a high rate of return. However, in addition to looking at the numbers, they are more likely than VCs to be persuaded by your commitment to your business or the simple desire to help you succeed.

    Venture Capitalists (VCs)

    Venture capitalists are institutional investors. They manage other people’s money and invest it in business ventures. VCs are responsible to the clients whose money they’re managing.

    Because they are dealing with money from many investors, VCs generally make larger investments than angels. If you are looking for $3 million or more, getting this amount even from an angel group will be more difficult than getting it from a VC
    VCs are in a better position to provide multiple rounds of funding as your company grows. If you know you’ll need more than one round, creating relationships with VCs can be very valuable.

    VCs almost always want to put their own management team in place, and you will need to give up a greater degree of control than you might have to with an angel investor.

    In general, VCs think bigger than angels. If your business has the potential to scale huge and you can prove it, pitch VCs first
    VCs are all about facts. If you have prior experience launching similar businesses, if you’ve got a tested management team, if your numbers add up, then you’ve got a shot at convincing VCs.

    Startup Funding Infographic

    Venture capital financing rounds typically have names relating to the class of stock being sold:

    Seed round where company insiders provide start-up capital.

    Angel round where early outside investors buy common stock.

    Series A, Series B, Series C, etc. Generally, the progression and price of stock at these rounds is an indication that a company is progressing as expected. Investors become concerned when a company has raised too much money in too many rounds, considering it a sign of delayed progress.

    Series A', B', and so on. Indicate small follow-on rounds that are integrated into the preceding round, generally on the same terms, to raise additional funds.

    Series AA, BB, etc. Once used to denote a new start after a crunchdown or downround, i.e. the company failed to meet its growth objectives and is essentially starting again under the umbrella of a new group of funders. Increasingly, however, Series AA Preferred Stock investment rounds are becoming used more widely along with convertible note financings or other “lightweight" preferred stock financings, such as “Series Seed” or “Series AA” preferred stock, to support less capital-intensive business growth, as their simplicity and generally lower legal costs can be attractive to early investors and founders.

    Mezzanine finance rounds, bridge loans, and other debt instruments are used to support a company between venture rounds or before its initial public offering.

    We invest too!

    We invest in startups from a variety of stages, which gives us a wide field to look at. That's why we spend countless time analyzing thousands of startups every year: we are in the business of finding the best opportunities.

    We love to see startups succeed and that's why we put a huge emphasis on passionate founders. We believe that they are the only ones with the imagination to make a startup successful.

    We have over 180 VC partners and an even wider network of angels who we work with to fund great ideas.