Fair to say you don’t need to be involved in early stage investing too long to pick up that there’s a perceived divide between Angel Investors and VCs. That also means that Founders and Angels are somewhat aligned in terms of their positioning in early cap tables as they begin to encounter early VC interest, assuming all is moving in the right direction, business-wise..
While we may sense that as both Angels and VCs are providers of risk capital to early-stage businesses, therefore there should be a degree of complementary function, as VCs are now perhaps seeking even earlier stage involvement, to get a piece of some rapidly accelerating tech businesses especially, that can have an inflationary spiral in valuations.
In turn that impacts risk vs. reward for angels who are contributing genuine risk capital, albeit in a tax-advantaged environment, at least in the UK. (This is from a UK, not US perspective - any potential guest post or feedback re that scenario very welcome…)
So, here are askanangel’s quick 9 differentiating points between the two camps, VC first.
- It’s impatient capital not patient capital
- VCs march to their LPs drum and timeframe (That is their job/mandate)
- It’s not a VCs own money
- Beware the 100%+ preference exit clause
- Beware the stacked preferences in multiple funding rounds - it's not unknown for founders to be very seriously diluted, even all the way!
- Valuation growth can be at founder and angels cost
- Angels may lose a cap driven board seat and the consequent information flow
- Beware the embedded dividend eating into OpEx
- By coming to earlier stage companies they promote “bubble” valuations
There is another side to the argument, keep an eye out for the potential riposte soon…
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