Partner Article

Who comes first the VC, Angel or entrepreneur?

The entrepreneur of course. However, it might not seem that way to some as Angels are not always, well angelic. Also, some entrepreneurs need convincing that “VC” does not stand for “vulture capitalist”.

My point is, don’t let outward appearances fool you when seeking investment. It’s too easy to listen to the gossip and stereotyping that goes on in the finance space. It’s the chemistry of the individual investor you want to look at, do you get on with them?

As a VC who has also invested as an Angel, and built several small businesses, I do get tired of people telling me one or other type of investor is better than the other. We are not evil people out to just make a pile of cash. True, we do need to make a return, but neither Angels nor VCs would work in the start-up and small business arena if our motivation was purely to earn heaps of cash. There are easier ways to do that believe me.

Another myth, I would like to bust right now, is that VC funds designed to support early stage businesses, sometimes with European or British Government cash, displace Angel investors. Or in some way these funds don’t want to do deals with Angels or Angel syndicates. People who go round saying this are afraid of a little competition. Wake up entrepreneurs, you do have choices about where you get your cash. There is a market place out there where investors have to compete with each other.

The truth is that the best business Angels work well with venture capital Managers and funds. Wise entrepreneurs who need capital and deserve the investment would benefit from using both over time. Why? Simply because Angels can add a lot of experience and the VC investor brings a different valuable skill-set. VC cash at its best can add a professional stamp of approval. A venture fund investment says to the world that someone who sees hundreds of plans a year, who may only invest in 5 to 10 a year, thinks your plan is worth backing.

The other thing to bear in mind is Angels can be very risk averse. The early stage pump-priming funds with government or EU cash fills a gap, or they wouldn’t be there. Most Angel investments I see are part of the second seed round not the first and hardly ever at proof of concept.

Bill Morrow the founder of AngelsDen, who manages some 6000 accredited Angels worldwide, said at a recent business conference that his Angels won’t invest pre-revenue.

The last time I talked to him he said the overriding motive behind an angel investing was to “have fun”, not the expectation of returns on the investments. Good job really as startups are very risky investments.

The other reason you should work with both types of investors is the mentoring support that both can give will improve your chances of success. It’s true 40% of VC investments are likely to fail but that’s about twice the chance of success of non-investor backed firms in the economy.

So, the next time you’re looking for cash to start or grow a business shop around. Base your choice of investor on what they will do for you over and above the cash and choose people you can get on with as partners. Also, don’t let them tell you the other investors are out to get you. The best Angels work well with the vultures, oh sorry, did I say that I meant the VCs.

This was posted in Bdaily's Members' News section by Rivers Capital Partners .