Seed, Angel, Venture. The Equity Ladder
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Friday, June 03, 2011
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Published in
Banking / Business Capital / Loans, Business Resources, Creative Capital Associates, Gary Honig
There is a distinction between different types of equity investors.
Knowing the difference between Seed, Angel and Venture Capital is critical to working with and marketing to them.
Seed capital is commonly known as “friends and family” investment. These are typically individuals who know you well and believe in your idea.
They invest small amounts of money to help keep the idea alive while the founders are working feverishly on giving the concept a life. For the most part, the seed investor is not a professional investor and the entrepreneur should be particularly careful how they structure the arrangement so there’s no impediment down the road when seeking other forms of investment.
So with Angel investors, begin with the most important attribute which is – are they truly professional accredited investors? Only work with professional investors who know how to manage the transaction fairly. Angel investors have various motives and drivers that will get them to become a partner in a company. “A strikingly well-researched and elegantly written book” is Finding Your Wings by Gerald Benjamin.
Unlike angels who work independently, Venture Capital (VC) Funds are managed by a team of people who answer to shareholders. The VC group goes out and raises a Fund themselves, targeting a specific mission. By the time a potential investment is being considered, there is a council of voices that must be attended to and reasoned with. So the experience is much more institutional, with layers of process. Obviously smaller VC funds are more streamlined, but for the purposes of this discussion the difference between working with an Angel and a Venture Capitalist is generally individual versus group and smaller versus larger size of the investment.
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