When an entrepreneur sets out to raise seed money, he usually has two options – he can go to angels, or to VC funds.
VC funds have been around for many years, and are very attractive. They are much more prestigious, because they have a brand name and much deeper pockets. They have a standardised process to follow and lots of experience to help startups to grow.
This means they are often the port of first call for most entrepreneurs. This is especially true in this day and age, where lots of funds are backward integrating, as they want to get in, on the ground floor, and engage early with hot startups and clever entrepreneurs. They are extending their activities, so that not only do they fund at the Series A level, but also provide seed funding. These micro-VCs are now competing with the angels.
While some entrepreneurs will find it very hard to raise money from anyone, some have an embarrassment of choices. They have the luxury of deciding whom to raise the money from – a VC fund? An angel syndicate? Or a family office?
All these have pros and cons, and a lot of these opportunities need luck and good timing. I feel raising money from a mature angel has lots of advantages – and I’m not just saying this because I am biased (which I am!)
A fund has multiple constraints, which it operates under, which means the fund manager has lots of additional responsibilities. These often shackle his ability to be able to make decisions which maybe in the entrepreneur’ s best interest. Because he has a fiduciary responsibility to his limited partners to whom he’s answerable. He may be conflicted, and may not have the autonomy to be able to do what’s in the entrepreneur’s best interest.
However, an angel investor who is investing his own money has a lot more freedom and flexibility to do what’s right for the company, because there is a greater alignment of interests – he succeeds only when the entrepreneur does!