Angel Investors and Venture Capitalists: Who, What, Where, When, Why? By Tom Tierney
Angel Investors (Angels) and Venture Capitalists (VCs): Who are they? What do they do? Where are
they? When do I talk to them? Why do they exist? Hopefully, some answers:
1. Who? Angels are generally wealthy individuals who invest individually, or as a group, with their own
money in early stage ventures. VCs are generally investors of “other people’s money”. VCs accept
capital from “limited partners”: individuals, institutions and other financial organizations, and form a
fund which is used to invest in early stage businesses. Angels invest their own funds and are
compensated only if the investment is successful. VCs are paid a “management fee” for a fund and also
get a “carry”, or percentage of any profits from the fund, typically 20%.
2. What? Angels will generally see a company pitch or presentation and if interested perform
“diligence”, often called “due diligence”, and further investigate the business and business model, its
management, the market and other aspects of the business proposition. Angels may invest individually
or as a group and ask to maintain a seat, or seats, on the company board of directors to help with the
business as it grows. VCs also perform diligence, may invest individually or with a syndicate of other VCs
and also typically with take a board seat, or seats, to monitor and help the business as it grows. Angels
and VCs not only provide funds but ideally add a wealth of experience to supplement management and
help with advice as the company grows.
3. Where? Angels are everywhere and generally willing to talk to any early stage business. The Angel
Capital Association maintains a list of member Angel organizations along with contact information:
http://www.angelcapitalassociation.org/directory/ VCs may require a reference for initial contact with
an early stage business while others welcome any contact. The National Venture Capital Association
maintains a list of member VC organizations along with contact information:
4. When? Angels generally invest very early in a company’s formation. Angels may “seed” or provide
initial funds to start a company but usually invest in “series A” or the first round of investment, post
company formation. VCs invest larger sums than Angels and will invest in companies generally after
advancement of a product or business model. VCs typically invest multi-million dollar sums while the
total Angel average investment is less than $1M.
5. Why? Angels invest for a variety of reasons: to ideally make a high return on their investments, to
stay in touch with current technology and help businesses, to give back after being helped themselves
earlier in their careers, to keep some business social contacts in retirement etc. VCs may in part have
similar reasons to participate in early stage investing as Angels, but they predominantly have a fiduciary
responsibility to their limited partners to attempt to garner as large a return as possible on the fund
Tom Tierney lives in Encinitas, CA and is a member of Tech Coast Angels (www.techcoastangels.com).
Also see http://en.wikipedia.org/wiki/Tech_coast_angels for more background information on the TCA.