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Hey there,
Welcome to the new people on the list - as a reminder, I am Dragos from Project Arrow, where we guide founders with what to do and who to talk to in order to get funded and accelerate their startups.
Today we’re talking about the difference between angel investors and VC firms.
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One of the topics we’ve covered with the Project Arrow’s founders for the past days is understanding the type of investors they’re looking to raise from.
More specifically, we have talked about the difference between angel investors and professional VCs - this is particularly useful to ponder at the very early stages of your startup.
Here’s what to consider:
Other people’s money
Angel investors invest their own money - can be their savings, money they inherited, can be returns/exits from other businesses. They’re the only ones deciding how much and when to spend it.
VCs, on the other hand, invest other people’s money. They’re employees of a company administering funds raised from other investors, called LPs, and usually make an investment based on a process that involves an investment committee and/or at least other VC partners validation.
Check size
Angel investors can go as low as $1k, 5k or 50k, sometimes even higher.
VC funds usually have a minimum threshold amount of 50-100k they will put on a check.
Returns
The check size also impacts the return expectations - even though the multiples may be the same, a 10X return to a $1k check is very different than the one of a 10X for $100k.
However, all VCs will tell you they aim for each investment to return the size of their fund - that’s aspirational and mostly BS because such events are probabilistically rare.
Having a thesis
Most angel investors do not follow a thesis - namely do not have a specific startup profile they’re after. Serendipity is more of their thing, and the investment decision relies more on gut and the chemistry they have with startup founders.
on the other hand, VC investors (at least the better ones), follow upfront a specific set of requirements defining an universe of startups - can be a geography (i.e. only startups from Germany), an industry (i.e. climate), a business model (i.e. SAAS), a category (i.e. B2B) or other things they will usually not say upfront (i.e. only serial founders, only YC companies etc).
Follow on financing
Angel rarely follow-on on their investments.
VCs will follow on further investments to at least preserve their equity share in the company.
Support and control
Most angels will just write a check and don’t get involved in the day to day management of the company. Some of the better ones may be useful with doing intros or ocassional advice, but that’s rather the exception than the general rule.
VCs usually like to get involved in the day-to-day management process and this is their claimed “value add” or the advantage differentiating the money they’re capable to provide.
This is equally applicable to the control of a startup - angels usually don’t sit on boards, while VCs usually ask for a board seat in order to control the decision process making within a startup.
Understanding those nuances is part of the basic sales process prep for a good fundraising process - the going to war kind.
Finding the right type of investor and building an investable business is our bread and butter at Project Arrow. If you run an early stage startup looking to grow and consider raising money, I am sure you have lots of questions. Drop me an email for answers - or better yet, simply join the program, it’s a great way for getting an outside professional opinion about how investors look at you and learn what you can improve.
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Learn from other founders
Is it difficult to raise money? How long did it take? What milestones does my startup have to meet? What do investors have to understand about my company?
We interviewed founders and investors involved in successful VC rounds at very early stages of their startups. Here’s what they had to say.
Startups recently seeded
If you want a full list of interesting startup raises from all over Europe, you can go check Monday CET. Below a selection of the more interesting ones:
🇬🇧 Captur - AI image data platform providing image quality detection and workflow specific detection solutions (London)
🇫🇷 Fentech, developing an AI-enabled system used for for retail sales forecasting (Paris)
🇩🇪 Nala - Nature Management Platform enabling companies to measure, manage and report their impact on biodiversity (Berlin)
🇩🇰 Riact - real-time development platform for creators and users of flexible robot applications (Copenhagen)
🇩🇪 Tiptap - suite of open source content editing and real-time collaboration tools for developers building apps like Notion or Google Docs (Berlin)
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