The line between these two is blurring very fast. VC’s are realizing that if they are not in early or late, they will not do well. Call it the barbell strategy. Given how successful many angel-backed companies have become, VC’s are agreeing to look much earlier than the traditional Series A round to engage.
This clearly provides more leverage to the entepreneur as more early funding sources are now available.
Advantages to the VC as seed:
- The A and future rounds have a major player supporting the company and fundraising. This is particularly valuable if traction for some reason is taking slightly longer than first thought or if competition is mounting.
- Distribution channels for the fledging firm are more available. As has been noted often, early distribution channels were critical to the success of many firms, including Google and MySpace. Going it alone is abnormal, especially in this interconnected market.
- Easier to target. VC’s are more public about their interests and can be targeted more readily than angels.
Advantage to the Angels
- Valuations are often better. That said sophisticated angels can be as demanding and tough as VC’s.
- Cash amounts can be smaller. Many VC’s expect 250-500K seed rounds
- A rounds are not pre-baked, allowing for higher valuations if the company is tracking well.
Draw:
- Expertise can be equivalent. There are smart angels and smart VC’s, both willing to help.
- Their money is equally green.
I am sure I am missing many and invite edits to this.
