Why Angel Investors Love a Good Venture Capitalist
“Venture Capital is about capturing the value between the start-up phase and the public company phase.” – Fred Wilson
As previously noted in our blog post ‘Homegrown Companies… Where are they?’ the only job creation in the United States comes from new organizations. Start-ups like all businesses need money to drive their business and growth, financing must come from somewhere whether it be the entrepreneur, friends and family, Angel Investors, or Venture Capitalists.
While most firms get their initial funding from Angel Investors who invest in seed and growth capital stage companies, successful firms often require later, much larger raises to really grow business efforts. At this point, Angel Investors are tapped out with a full portfolio in need of IPOs or acquisitions for liquidity. Venture Capitalist who typically invest in $1 Million deals or greater are able to then invest in the start-up and validate the deal. As a rule of thumb, we say that if Venture Capitalists won’t fund a deal, there must be a problem with it.
According to GeekWire, Venture Capitalist funds are shrinking and becoming less common; in 2016, VC firms shrunk by 20 percent over a 10-year span. Venture Beat explained last year that the rate at which VCs invest is declining and the funds are beginning to look like private hedge funds that don’t even consider investing in start-ups.
While it is the common belief that Angel Investors do not like or support Venture Capitalists, that can’t be farther from the truth, only young, naïve Angels think this way. The reality is that Angel Investors need Venture Capitalists to further invest in deals so they can reach IPOs and Acquisitions creating positive returns for Angels; without VCs, deals may go south simply for lack of funding.
We encourage all Angel Groups and Venture Capitalists to work together to make entrepreneurial ventures succeed; if they are meant to fail, it shouldn’t be for lack of funding.