In this post, I’m going to share with you the difference between an angel investor and venture capitalists.
This difference between the two is really important to know because both of them will give you money but in completely different ways.
It’s important to understand both of these terms because both of them seem the same on the outside, but when you dive in, they’re completely different, and understanding those differences will help you avoid raising money from the wrong people with the wrong expectations, and really creating road bumps or speed bumps, or roadblocks in your startup business.
It’s worth me saying that whilst I’ve never raised money, indeed I’ve mostly been providing SEO Services in Hong Kong, the UK, and the US, I’ve worked on dozens of starts up in the APAC region that has raised considerable sums of money.
Let’s dive into this!
What Is An Angel Investor?
Number one, source of money. Where does the money come from? Well, the good news is I can tell you, angel investors.
An Angel Investor is an individual spending money and investing it often on buying private stock in companies, and essentially that is is how Angels work and where their capital comes from. Usually they’ve done something in the past, they have a business, they’re high net worth people, they’re definitely for the most part HNWI (High Net Worth Individuals); and that is particualrly the case in Hong Kong and Singapore.
What Is A VC?
The VC’s, which I find fascinating, typically raise capital from other investors, sometimes called the limited partner. Usually, the person who starts the venture firm or the fund is known as a General Partner” or “GP” and then there are “LP’s” or “Limited Partners” that act as the actual source of the money.
And, the reason why I find it fascinating is because if you think about it, VC’s are just like entrepreneurs in the sense that they have to go raise money too, to fund their VC firm.
Just like you’re going out there and maybe asking people for money, they did the same thing, so they, you know, it’s kind of neat that they have to feel the same rejection, do the same pitches, and try to get people excited about their business. But those are the main differences, angel, it’s their money, VC, it’s other people’s money.
Your Investment Thesis
Angels typically have done a ton of investments and they do it for fun; they do it “to learn”.
Sure, they want to make money and generate a return, but for most angels, they do it as almost a way to give back. They do it as a way to learn faster, and they do it in a way to essentially create a portfolio of companies that are high growth, because they’re busy, typically with their primary income business, and they just want to have fun. That is the investment thesis. There’s no magic to it. They’re just like, “hey, I’ve got this extra capital set aside, I want to be involved in more startups, and aligning my money and my time, and my advice.” This is almost an ideal situation to be in from an entrepreneur’s position when seeking funding.
VC’s However, their thesis or ideas around investing is very specific.
Typically when they raise their fund, their pool of money, they’re saying to their investors, their limited partners, that, hey, I think there’s this opportunity in, you know, let’s say work B2B SaaS. So, stuff that helps the new distributed workforce.
There’s this new trend in the market.
Bitcoin SaaS, drone SaaS, artificial intelligence, and big data. There’s some kind of specific thesis that they’ve seen that they’re pitching to their investors to raise the money, so when they’re looking at deals, they will have a preference. You just need to make sure that you’re talking to the right people: that is the key point in this post.
If it’s just a high net worth person, they’re just looking to make money, have some fun, and learn some stuff from really young motivated entrepreneurs, and get it going. But those are the primary two differences.
Is There A Different Pitching Style Between An Angel And VC?
What is it like to pitch those two different types of investors?
Well, number one, the angel is very informal. At the end of the day, most of my investments came from an introduction to a phone call to an in-person meeting to writing or wiring a check, especially so in Hong Kong where most things are done by referrals.
The Angel is more informal, the VC is not.
On the VC side, it is a bit more formal and you’ll definintely find it more structured.
Monday VC Meetings
Many VC’s have what’s known in the industry as “Monday meetings.”
In their Monday investor meetings is where all the partners of the investment firm get together. They’ll discuss all the latest investment opportunities and personalities behind those investments.
If you’re an investor then any investor, Angle or VC, will want a pitch deck.
Informal vs Formal Pitching
Your pitch deck can be a little more informal for an Angel over a VC, but still, remember, it’s all about the numbers and ROI.
This is a great resource to check out, you can see the pitch-decks of many famous tech-companies such as Facebook, Airbnb, Buffer, Square, and Linkedin.
How much does an angel usually invest versus a VC
On average, an Angel Investor is anybody on the low end of, let’s say, HKD 10,000 so up to HKD 110,000, up to about HKD 250,000. Any more would be the exception.
On the VC side, I should think that it would be, in USD 250,000 to USD 3,000,000. This would particularly be the case if the startup is at the fund-raising stage and pre-series A, or “Seed Round”. For a neat piece on the difference read this resource.
Finding The Right Investor
What do these two different types of investors look for in regards to making a decision?
I’d say that advantage of an Angel Investor you typically get a High Net Worth Individual who is excited about your idea, and you’ll get to know his or her team, and the market experience that they bring.
As for VC’s, especially in Hong Kong, they are not “all the same” either.
A VC wants to see “traction”; that is vital for both investors but perhaps more so for a VC. Traction to me means “momentum”.
Key to everything is momentum. I have worked for some major Hong Kong startups, one was in the food delivery space (pre protests) and it was doing really well with funding. More funding brings a sense of FOMO for many VC’s when they see traction and growth – but you HAVE to keep that traction going!
The good news for us growth marketers we’ve got plenty of work to help these types of businesses get traction.