VC or Angel for Early Stage?
by Aner Ravon

Shai Tsur of Giza Venture Capital has launched the quasi official Giza blog lately. A well written and edited blog that doesn’t shy away from controversial subjects and critical angles. In recent posts, Shai took note of 2 interesting posts written by Torsten Jacobi called Is the VC Model Broken and by Advisor Garage called To VC or not to VC. Both posts discuss the complexities VCs and Start up-ists face when they look to breed. Worth reading.

Almost every start-up-ist faces the “VC or Angel” question in the early stage. While angels and VCs are different, there is no single recipe describing who should go with who and at what stage. It is worth noting that early stage start-up-ist have a higher tendency of ending up with an angel investment. I have heard many theories regarding why that’s happening and all of them seem true. My humble contribution to the discussion is as follows:

1. Early stage is about intuition. At the early stage, it’s more about intuition than about anything. It’s not about “the management” or about “the size of the opportunity” or “the goto market plan”. It is all about the specific founder(s) and what the angel believe they can do. The company is destined to flip over backwards as it kick starts - switch models, sectors, approaches, perhaps even people. While the VC applies intuition as well it also has a deal flow system - more analysis prone and longer to execute through, therefore representing a much better fit for better established companies or for better established ideas. 

2. Primary Motivation. Start-up-ists and angels are more aligned when it comes to the motivation in the early stage. A start-up-ist does not see a $250M exit as a precondition to starting a business. The questions are much simpler - do we see an opportunity? can we build a profitable or innovative business around it? Can we identify with it? Can it all POTENITALLY become really big? The angel usually has the profile that identifies.

3. Speed. At the early stage the start-up-ist’s urge is to quit whatever she is doing and dedicate herself to the new start up as soon as possible. Turns out that angels usually have a built in, quicker decision making cycle.

That being said, I don’t think the VC model is broken or that VCs don’t fit the early stage. I do think, however, that it is very hard for a VC to compete with angels in a space such as early stage, web 2.0 investments and that it’s doubly difficult for a start-up to qualify in that environment.

VC “quick launch” programs have been formed over the last couple of years in order to create an insulated, early stage, environment within the VC. It is too early to tell whether this model works out, as most programs still involve some sort of a traditional deal flow and as Angels are more experienced in “smelling” early stage opportunities, at least for now.

Aner Ravon
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