Not much difference between angel investors and VCs anymore

Navigating the dynamic funding ecosystem of angel investors and venture capitalists (VCs)

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The startup is going well, but now it’s time to pursue capital. With friends and family networks running thin, who are you going to call?

Angel groups exist across the country, and there are VCs (venture capitalists) you might want to approach. In 2024, funding options have expanded even further, with super angels, crowdfunding platforms, and impact investors joining the mix. The rule of thumb remains: explore all options. Raising money is still a long and challenging process, so don’t limit yourself.

That being said, there are important differences to consider. Angels often make quicker decisions, but gathering enough of them to complete a funding round can take time. Individual investment amounts are typically smaller than those from VCs, meaning you may need a diverse list of investors. Some angels will want a seat on the board, while others prefer to remain passive. In the past, angels often invested with minimal due diligence, but in today’s high-stakes environment, most take a rigorous approach to evaluating opportunities.

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VCs, on the other hand, often bring more than just money – they promise strategic value through connections, mentorship, and industry expertise. However, not all VCs deliver on this promise. Today, it’s easier than ever to verify their track records. Check their portfolio companies (usually listed on their website), and reach out to founders for honest feedback. Here’s a tip: if a VC has three or four partners managing 60 active companies, their attention will be spread thin. How much time can they realistically devote to you?

Before reaching out to VCs, evaluate the scalability of your business. In today’s funding environment, technologies with the potential to disrupt large markets – such as AI-driven solutions, renewable energy innovations, or climate tech – are particularly attractive. Both angels and VCs will want to hear about such ventures. On the other hand, smaller opportunities or lifestyle businesses that don’t align with VC goals can still appeal to angels if they have strong growth models and clear exit plans.

Speaking of exits, the timelines differ significantly between angels and VCs. Angels tend to focus on individual investment success and are often more flexible when a reasonable offer comes along. In contrast, VCs manage funds with fixed lifecycles, usually around 10 years. Many funds have adapted to extend their terms, allowing portfolio companies more time to grow. While this can benefit some startups, it might also delay your preferred exit timeline. Understanding this dynamic is key when choosing your funding source.

Start building relationships even if you think it’s too early to pitch. Meet with potential investors and explain that you’re not seeking funds just yet but will return when ready. Send them quarterly updates to showcase your progress. In the competitive 2024 funding landscape, relationships are more important than ever. A strong rapport with investors can put you ahead when it’s time to raise capital.

The distinction between angels and VCs continues to blur, with angels increasingly investing in post-commercialized companies and stepping into traditionally VC-dominated spaces. Super angels – individuals who can fund entire rounds themselves – are becoming more prominent. The past decade has also seen significant professionalization of angel groups, many of which now offer structured support like coaching for entrepreneurs, training programs for investors, and thorough due diligence processes.

In 2024, raising capital means navigating a more dynamic and crowded funding ecosystem than ever before. Whether you choose angels, VCs, or alternative funding sources, the key is understanding their differences, preparing strategically, and building lasting relationships. With the right approach, you can secure the capital you need to take your business to the next level.

Warren Bergen is the author of Swagger & Sweat, A Start-up Capital Boot Camp.

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