How to Raise Money from Angel Investors and Venture Capitalists – Chapter 2

Understanding the types of investors
by Marshall Brain

Let’s start by talking about the four different types of investor.

An angel is anyone who might be willing to trade their money for shares in your company. This could be a friend, a relative, a neighbor or a wealthy individual – just about anyone with excess cash and an interest in your company.

An angel group is a group of people who have pooled their money together to invest in companies. For example, 40 entrepreneurs can form a group and they each contribute $50,000 to create a $2,000,000 fund. They might set out to invest in 10 companies over the course of three years. The group hears presentations from companies at monthly meetings and decides together whether to invest or not. I am a member of an angel group called Triangle Angel Partners.

A venture capital firm is a company designed to make investments. It raises money from places like pension funds, university endowments, corporations and wealthy families. The partners in the firm hear presentations from companies and the firm decides whether or not to invest. A VC firm could, for example, raise a $100 million fund to invest in 10 to 15 technology companies.

A relatively new phenomenon is the super-angel. These are individuals who have enough money and clout on their own to act something like a one-man VC firm.

As you might imagine, the amount of money available rises as you go from angel to angel group to venture capital firm. Similarly, the level of formality is lowest for an angel and greatest for a VC firm. If you are using your brother as an angel investor, you might be able to talk to him for 10 minutes and get some money on a handshake deal. That is not necessarily a smart thing to do, but it happens all the time. Getting money from an angel group or a VC firm might take six months or more.

Whichever type of investor you are approaching, they are all looking for the same kind of thing: They are looking for a good investment. What is the most important marker for a good investment?

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