How A VC, Angel Investor and Entrepreneur Work Together To Build The Next Big Thing

If you’re looking to grow a business but don’t know where to start, you’re in the right place. Entrepreneurs won’t come across a lack of investors as they search for funding. There are different types, and the choice is dependent on factors such as size and investment strategy.

Here’s an overview of the four main types of investors that you might come across as you begin building your business:

Venture investors, angels, crowdfunding, and your friends all provide different sources of capital for your business, depending on your company’s stage. While you’re in a bootstrapping phase, you’ll often rely on friends and family and crowdfunding rounds, but as you shift towards growth, you’ll need outside investment.

Venture capitalists and angel investors provide that much-needed capital for your startup. These groups look at a number of different factors before investing, such as your company’s business model, traction, and even your team. Angel investors are typically entrepreneurs or business owners themselves who have the knowledge and connections to help you get started.

While angel investors do not realistically expect to gain much – if any –  return on their investment, VC firms do. However, both types will work closely with entrepreneurs, and may offer them advice. Not only do they help you save time and effort, but they also have the connections that can help make your startup a success. Whether it’s providing funding for building the product or service, or investing in what you’re doing–both investors are valuable for startups.

When it comes to the main difference between VCs and angel investors, the VCs usually invest other people’s money while angel investors fund their own investments. Since these companies are so likely to fail – with 90% shuttering within the first 5 years -, they rarely earn a return on their investment -; even if the company goes public or is acquired.

Entrepreneurs and angel investors both take a risk when it comes to financing their business, but they differ in the type and time of investment. Entrepreneurs are expected to self-fund and put in “sweat equity” (aka -; their time and effort) while they’re still in the ideation or idea phase. In contrast, angels typically invest somewhere between $25,000 and $500,000 – but only after it has already started showing revenue growth – to help nurture it toward stability.

At early phases of fundraising, you are more likely to find “niche” investors, like LGBTQ+ or women investor syndicates, or local groups like the Nevada Angels. This is especially helpful when you are starting out, as their communities will have additional networking resources that can help you as you grow.

Angel investors play a key role as strategic investors and mentors in the early stages of many startups. They typically make smaller (and in some cases larger) investments in exchange for a smaller equity stake in a company -; often 5% to 15%, depending on the amount of money they put into your company. In a number of cases, angel investors will become co-founders of the company.

Angel investors are often successful entrepreneurs who have made money in a previous company and now use their expertise and connections to provide critical capital to new start-ups. Angel investors may be less formal than a typical venture capital firm, but they do want to know that you have a clear business plan and you’re able to execute on it.

As a founder, your main responsibility is to create a great company. Angel investors can help you with the financial resources required to get started and by providing guidance and mentorship. Some angel investors may also be involved in the business in an operational capacity, such as helping with hiring decisions or serving as a board member.

In my own capacity as an angel investor when evaluating a new company for investment, my availability to the team is often more of consideration than the monetary cost. Early-stage startups are often looking for a lot of assistance from their advisory team – and too often, they don’t realize it, because they’re inexperienced. Therefore, entrepreneurs need to be prepared to ask their angels for both a realistic monetary and time investment.

When you’re in search of an investor, one of the things you should do is evaluate their background. It’s important to find somebody that can complement your values and goals. When meeting with potential investors, it’s worth asking them some questions about their past experience and their willingness to provide advice.