As an entrepreneur, should you favor Business angel or Venture Capital to finance the growth of your Startup?
It depends on what stage a startup is in and what their needs are. Both Angel’s and VC’s have their unique strengths during the different stages of a startup.
The very first financing should come from yourself and some close relations that ideally have a stake in the project (customers/suppliers/clients). If you have a brilliant idea, strong track record and network, this type of funding should not be so hard because it is relationship based.
Once you have built a strong MVP, have several pilot customers, you should look for several business angels specialized in your field and if you can find them, some specialized micro-VCs (like Born Capital). In this phase you should maximum benefit from advisors and people with strong networks that are willing to make the right introductions and help you to further tune product/market fit. In this stage you would favor 10 relevant angels over 1 or 2 VC’s.
The benefit of working with Angels at seed stage is that they can decide much quicker, and Angels are often attracted to the project for more than just financial return. As an example, I angel invested in the seed round of a Dutch startup producing a robotized indoor cycling trainer. I felt strongly attracted to the project because I am a fanatic cyclist and use indoor cycling in the winter to stay in shape. I tested their product and was convinced they would be able to create strong demand for the product and took that into consideration for my decision to invest. This level of personal engagement is quite unlikely to find with a VC.
In the next phase when you have found product market fit, the market is pulling the product out of our hands and simply cannot meet the demand with the current team, it is time to look for a partner that can help tiy scale. Ideally, try to find a tier 1 VC that could lead the round. This VC can help you to get the right governance in place and form the board of directors and help you to build a good foundation for further growth. In this stage you would still look for value add investors (either Angels or VC’s) that can join the round, as you could still benefit from their knowledge and network.
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