Why VCs are easier to raise from than Angels

Picking up with the flipside of the last blog post, this post explores why VCs are sometimes easier to raise from angels. Generally, angels have 2 key disadvantages: 1) they’re not professional investors, and 2) check sizes tend to be smaller.

Tackling the second issue first, the main reason it’s difficult to raise an angel round of any size is simply check size. For a round of $500k this may not be an issue, but if your typical angel writes $10–50k checks, then you’re looking at at least 25–30 to fill out a round. Figure you only convert 10% (at best) of your meetings — that’s a lot of angels you’ve got to go and find. And a lot of time. Whereas one lead investor plus one smaller fund could fill a million dollar round in far fewer meetings. So there’s your first reason — a VC can be almost a one stop shop (even if it’s a longer diligence process), whereas angels can be a bit like herding cats.

As to the larger issue here, that angels aren’t professional investors. I won’t get into defining “professional” or whether diligence matters, etc, here, as those are deep waters. The key to this comment is around having a committed pool of capital that needs to be deployed by a team paid to invest it. For VCs, the dirty secret is we need great entrepreneurs as much as (maybe more than!) you need our money. We raise money from our LPs (which by the way, is just as hard as your fundraise — I’ve done both!), then have to put it to work. We’re therefore required to find good deals, and make a certain number of investments, and we need to make the time to do so. Angels have a mindshare and walletshare issue at times. They tend to be successful and relatively busy — so you get someone close to investing, then your close could be put off because of their trip to Russia, or by a personal family issue. Funds are more difficult to derail. Angels also don’t need to invest — they could always just buy another Porsche with their $50,000. And therein lies the biggest challenge with angels. You not only need to be the best venture style investment they’re seeing, not just the best investment they’re seeing across sectors, but also beat out non-investments like lifestyle consumption.

These factors make angels a bit less predictable than funds. In some cases, that can be great — money comes in quickly with little diligence, in others this process can be maddening to entrepreneurs.

Collin Gutman