3. The consequence of their investment:
Individual investors believe in you and invest in you as a person, but the professionals make their living by evaluating deals and making offers. There’s much less emotion and a lot more process involved, which can be a good thing because this is often good business practice. The hard part is that all this professional experience might cause investors to be rigid in their thinking about how a deal should be structured and closed.
There are a couple solutions to this dilemma, but you’ll find them lukewarm at best. First, swallow hard and go with the flow. Second, try to find out beforehand how the firm structures its deals. Armed with this information, you’re in a better position to take certain things off the table before they even become a part of the negotiation. A good way to find out how past deals have been structured is to contact the founders of companies that the VC has funded. You can find this information on almost any VC’s Web site. You may be surprised at their willingness to talk. And when the VCs find out you’ve been researching their deal structures, it could be helpful to your success.
4. The setting of different goals:
Both sets of investors are looking for a healthy return, but the angel’s required rate may be somewhat more moderate. Why? The professionals are interested in managing the fund and reporting to their investors. When professional investors ask about your previous ventures, they’re only interested in the bottom line. They don’t care if the companies served a purpose or that they created jobs. They judge you by your previous monetary success.
By contrast, however, individual investors often fund companies for motives that may not be purely financial. Some reasons include a desire to put something back into the industries that made them successful, to provide the resources that they wish they had starting out, a desire to be mentors, and the opportunity to relive their past successes.
The difference between these two types of investors can be the difference between an alumni booster at a football game and a nuclear power plant inspector. There’s little you can do to overcome this reality except to expect it and not be offended by it.
5. The size of the investment:
One happy difference to keep in mind is that professional venture investors have a pool of capital set aside to make initial as well as add-on investments. When they’re in, they’re in. But individuals have less to invest, and their situations are often far more complex. Remember, individual investors probably already have money invested somewhere else. They may have to liquidate; if so, there are tax implications they have to consider. That means angel and individual investors are considerably less liquid and have much less tolerance for putting in more capital down the road.
As a result, your strategy with angels and individuals should be to get as much financing as you can up-front. But with professional venture investors, you shouldn’t raise too much more funding than you actually need. There’s plenty of money left in their till and if you succeed, you’ll get it the second time around at a much better price.
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