Funding your startup: Angels Vs VCs

[The_Big_K]

I know that this discussion is available on lot of other websites, but that cannot stop us from starting a new discussion over here. I'm sure it will benefit lot of crazy engineers who want to start their own enterprise.

The question is -

What is the difference between Angles & the Venture Capitalists?

If anyone can explain in simple terms, please go ahead. Otherwise, I'll update the thread after few days

-The Big K-

[kidakaka]

Check Wikipedia (Shameless Promotion!!)
http://en.wikipedia.org/wiki/Angel_investor

Essentially, Angels are people who put in their own money into a business in exchange for equity. Whereas a VC fund is a collection of other people's moolah managed by a VC firm. Generally, one of the partners of that VC firm also put in some money of their own as a show of confidence (but thats not a prerequisite).

[The_Big_K]

The Angel - (taken from www.passionfund.com )

ANGEL: An angel, typically, is a high-net-worth individual who works directly with entrepreneurs and funds them for a stake in the business. Real estate and other support services are usually not part of the deal. Angels usually provide start-up level funding to allow a company to come to a point where VC or other funding can be obtained. (Very few VCs will invest less than US$1 million in a business - so if your idea needs to be built up to a stage where you want to get $1 million but want to give away less of the company to the VC, you might look at going to an angel, building up your valuation, and then going for additional funding at a higher valuation.) Hundreds of Silicon Valley millionaires, Michael Dell, Bill Gates, Jim Barksdale et al are among the 'angels' startups have 'touched'. This is usually a good move for people who can get an idea off the ground themselves, but need a jolt of adrenalin to take it to the next stage. Advantages: money without the hassles, no management interference, sometimes you get from-the-frontline advice and contacts. Disadvantages: usually not enough $$ to take you to IPO.

The VC
VC: A money manager who typically invests funds they've raised from banks, corporates, FIs etc in high-risk ventures where there's little or no collateral. VCs nowadays have huge warchests ($1 billion and upwards in some cases) and tend to work on the principle that some of their investments will fail, some others will get phenomenal returns - and on an average, they'll do much better off than being in any post-IPO stock market. Many VCs today bring contacts and relationships that are immensely beneficial to entrepreneurs - the now-legendary Kleiner Perkins Caulfield Byers (http://www.kpcb.com) is a case in point. This is usually a good idea (actually not too many other alternatives) for anybody who needs significant funding in the $1-2 million plus range. Advantages: lots of money, in some cases, good contacts and relationships. Disadvantages: VCs need to show a return on investment and may push you to a liquidity event (merger, IPO, buyout etc) sooner than you might think. They're also usually more active on your board (this could be a plus or a minus).

We have many entrepreneurs on CE. Join in, folks! There are thousands who will benefit from your experiences & knowledge


-The Big K-

[The_Big_K]

Dead thread

Comments are welcome!


-The Big K-