Venture Capital vs Angel Investing & Seed Financing

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Venture Capital vs Angel Investing & Seed Financing
« on: April 20, 2017, 06:08:19 PM »
The primary differences between VC vs seed & angel investing are timing in the company's lifecycle, monetary size, and deal structure.

Timing. Venture capital is typically not used for extremely early funding. Instead, these rounds are often called "Series AA," or "Pre-A" rounds, and include funding from friends & family, angel investors, and seed stage financing syndicates and firms. Venture capital firms usually get involved at the Series A round and after (all happening after the AA or Pre-A rounds). Although both VC and seed/angel investing are high risk investments, seed & angel investing usually happen in the earliest stages of a startup when the risk is ultra-high.

Funding Amounts. Venture capital also usually starts with companies that are slightly more mature (although not necessarily profitable), with higher valuations, and higher funding amounts. Funding amounts in angel & seed investing typically range from a couple thousand USD through to one million USD, while venture capital is usually millions, tens of millions, or even hundreds of millions of dollars.

Deal Structure. Angel investing also frequently uses different deal structures than VC, although this is primarily to reduce legal costs, cut transaction overhead, and rapidly accelerate the rate at which the startup and angel investor can agree on terms. Some of these alternative structures include convertible notes and SAFEs ("simple agreement for future equity"). Unlike venture capital, convertible notes and SAFEs don't actually transfer equity in the company to the investor until a later date, and in the case of failed startups, sometimes not even at all.

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Sunjida Khan
Department of Business Administration
Faculty of Business & Economics