Know Before You Pitch: Differences between Angels & VCs
By Rebecca Enderby, Edited by Julia Rose
Want to pitch for investment?
Angel Investors and Venture Capitalists are two main places to start.
There are 5 key differences - we’re outlining them for you here!
Angels or VCs – Who’s Your Best fit?
First - you’ll need to get to know your business, your needs, and which type of investor is right for you.
Both invest in growing businesses with great products or services.
Who they invest in, when they invest, how much they invest and their expected rate of returns are generally different.
1. Who are they?
Angel Investors tend to be entrepreneurs or former entrepreneurs who invest their money in small businesses.
Venture Capitalists are people or firms that invest in small companies using money from investment companies, larger corporations or pension funding. VCs don’t use their own money.
2. Size of investment
Invest smaller amounts in total than VCs
Tend to invest in the tens of thousands or hundreds of thousands
Can be more risk-taking because they invest at the beginning of the business’ journey
Investments are higher
Investments can be in the millions of dollars
When pitching you need to have a clear idea of the money you need and where and how it will be spent. Make sure you ask for ENOUGH - know your value, your worth, and ask for the amount you need.
3. Stage of investment
Angels are more likely to invest when a business is starting up. Angels invest before a VC but they won’t just be investing in an idea. Before reaching out externally, many entrepreneurs start with their networks, friends, and family.
VCs invest in businesses that are established and have had previous funding. Venture capitalist firms are looking for businesses with high and quick growth potential, so if pitching to a VC you need to prove this potential for growth and show your previous funding.
Both angels and VCs invest. Both expect your business to do well so they can get a high rate of return.
The return they expect generally depends on how much they have invested, how you've structured the deal, and what stage of maturity your business is in.
When you pitch, know your numbers inside and out. Have solid explanations for your projections. Be able to prove them. Investors know they're based on expectations. So tell them exactly how you got there. Use metrics that are proven to work. Show them how you'll pay them back. This is your time to shine. Show them how you'll make a profit.
Investors also want some form of control and involvement in the business and often ask for a seat on the Board of Directors. Angels investors offer mentorship but are less likely to want to have any direct involvement in business operations. Be prepared to give up some control. Be prepared to answer lots of questions. Be as transparent as possible!
Before pitching an angel or VC you need to consider how much input you want and how much control you are willing to hand over.
5. Will They Pick You?
For investors to pick you, perfect your pitch. VCs, especially, will spend a lot of time looking at you, your management team and your financials. It's not up to only one person, it's a committee deciding if they will invest in you.
Earlier stage investors are often using their own money. Their process could be as quick as a handshake or a SAFE (Simple Agreement for Future Equity).
VCs expect to see fast growth potential. If you're starting to build your company, you may be too early for VC funding. VCs expect to see fast growth potential, scalability, proven traction and sustainability. An earlier stage investor will be more patient.
Investors know you don't have all the answers. If you show up knowing where you are at and explain honestly, you’ll do great.
Hot Tip: The Friends and Family Round
Most Angel Investors and Venture Capitalists want to see potential in your business. A great way to show this is through gathering funds from your existing network of family and friends.
Raising money from your personal network shows you're able to gain support from a network of people who have bought into the business plan.
This round of investment can be in the form of gifts (no pay back) or loans. In any case, make sure you have paperwork and contracts to show who has given what and under what conditions.
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