I got mixed responses to my post on What should you really have ready before approaching me as an angel investor? yesterday. The comments on my blog and email (yes, I get email responses to my blog posts) were mostly from entrepreneurs who understood the changed landscape. The comments on my facebook stream from entrepreneurs indicate that my post was bordering on being a venture investor. So, I thought I’d clarify.
The landscape has dramatically changed from a year or two ago when companies got angel funding in India (and I suspect all over the world).
What’s changed you ask?
a) Accelerators and Incubators have increased startup quality. Friends Nandini & Sammer (Morpheus), Pranay Gupta (CIIE), Vijay Anand from India and Dave McClure (US) are doing such an excellent job with accelerating startups that angels are spoiled for choice. A company after having been through their program is a lot more ready and further along the process than others.
b) Angel List, VentureSutra, etc. have made an opaque, fragmented market more open. I get proposals from Israel, US and India for angel investing from companies at various stages now much more efficiently than used to 5 years ago. Previously finding good entrepreneurs was mostly relegated to networking at events or through word-of-mouth. No longer. I took myself off these lists (lack of time) because of the number of requests I got from very high quality entrepreneurs..
c) Global competition from higher quality companies. Fellow angel investors such as Pallav and Abhishek (Seeders) and Ravi Trivedi are seeing this also. We get proposals from companies in the US (started by Indians or native Americans) or from Israel (started by locals) a lot more. Indian entrepreneurs (and angel investors) are competing on a global scale. The quality of entrepreneurs is tremendously high and the bar has been forever raised, I believe.
If you are an entrepreneur competing for funds, you no longer are competing against other startups in your domain or geographic area.
So, what is the difference between an angel investor and venture capitalist now is the next question?
I believe there are 3 things:
1. Quantum of funds: If you are an entrepreneur who wants to dilute less and needs less money to grow (for any number of reasons), and your ticket size (amount you need to raise) is less than <$500K, you are more likely going to an angel. It does not stop you from going to a Venture Investor, but the size of the funding means the VC is less likely to give you significant time.
2. Size of market opportunity: There are several opportunities to get exits via smaller acquisitions in the range of $5 to $50 Million. These dont excite most VC’s, but might excite an angel investor.
3. Ability to provide you relevant network and connections. Angels’ who have domain expertise in your startup’s area of focus have depth of relationships which VC’s might not (they have breadth instead).