Angel Investors, Venture Capital, Which Should You Chose?

The basic question of whether angel investors or venture capital is right for your business typically revolves around the amount of funding you are seeking.

In general, if you are seeking less than $1 million, angel investors are appropriate. Conversely, if you are seeking more than $1 million, you should be looking for venture capital.

That being said, there are some additional questions to consider when deciding if angel funding or venture capital is right for you? Here they are:

1. Can you make significant progress with your business for less than $1 million?

While I’ve seen companies raise more than $1 million from angel investors, the average angel investment in a company is only $338,400 according to the Center for Venture Research.

So, think about your business and figure out if you could accomplish significant milestones for this amount of money. Specifically, you need to accomplish enough milestones to make your company cash flow positive, or enough that shows investors you can execute and that it’s less risky for them to write you a larger check.

2. Are you willing to give up equity in your business?

There are still many entrepreneurs and business owners who are concerned about giving up too much equity and/or losing control of their company.

Let me start by saying that capital is the MOST important thing to your business. In fact, running out of capital is the reason why most businesses fail. And with capital, your business gains massive competitive advantages such as the ability to hire better personnel, buy better equipment and technology, etc.

Now, in terms of giving up equity to investors, consider this important yet simple mathematical fact: 100% of nothing is nothing. And without the capital, your company may be worth nothing. As such, it is my experience that a small piece of a big company is better than a large piece of a small company. For example, a 10% piece of a successful company (perhaps a $10 million company) is twice as great as 100% piece of a small company, perhaps a $500,000 business.

Importantly, equity investors want YOU to maintain the lion’s share of your company’s equity, since they know it will give you the motivation you need to work really hard and make the company a huge success. In general, you should expect angel investors to want 10% to 35% of the equity of your company.

3. Are you willing to kiss a lot of frogs?

The process of raising angel funding (which you can learn to do here) includes a lot of frog-kissing. That is, you need to speak with a lot of individuals in order to find the few that will write you checks.

It can clearly be done, as tens of thousands of entrepreneurs raise angel funding each year, but you will need to invest time and meet a lot of people in order to raise the funding.

Few things are more exciting than building a company from nothing to a thriving enterprise. Doing so nearly always requires a significant cash investment. Unfortunately venture capital firms are no longer making nearly the number of such investments as they once did. But angel investors are. And if you’re an entrepreneur seeking funding, you should start speaking with these angels now.

 

How to Raise $1 Million or More

If you need millions of dollars in funding to build your business, you should raise venture capital.

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When you click, you’ll learn why the “old fashioned” way of raising venture capital is dead.

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