Angel Investors and Venture Capitalists: Who, What, Where, When, Why? By Tom Tierney

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Angel investors and venture capitalists

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Angel investors and Venture Capitals: Who are they? What do they do? Where are they? When do I talk to them? Why do they exist?

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Transcript of "Angel investors and venture capitalists"

  1. 1. 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: http://www.nvca.org/index.php?option=com_mtree&Itemid=173 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 investment. 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.

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