Angels or VCs - who should early stage startups raise from?

The two best options for early-stage startups are angel investors and venture capital firms.

Most startups will get their first investments from angel investors, usually from their personal network and closer circles. In later rounds, startups aim for bigger investments from VCs. But in between, a lot of founders debate whether they should prioritize angel investors or VCs.

Here are some of the things you should consider:

1. Are you even going on the VC route?
   Raising from VCs has been popularized on TV shows and beyond, and many founders assume they need to raise venture capital. But not every startup aims for the hyper-fast growth VCs are looking for. Raising big money comes with a lot of costs, both in equity and control, and in the pressure the founding team will endure. If you want to raise from VCs, be sure you really know why.

2. What is your business plan?
   VCs can obviously invest bigger amounts. If you’re in a capital-intensive business or need to spend years in research and development, you will need a lot of cash to get you across. If that is the case, you cannot rely on smaller checks from angels, and you should plan to raise from VCs and start early on that path. However, if you can build your business and get cash-positive in a relatively short trajectory, angels will be a more convenient option for you.
   You should also think about the capital you will need in the coming years. Most serious VC firms keep the money to invest in their portfolio startups in future rounds, so getting a VC on board will help you finance the future legs of your journey. Angel money is often limited to your current round (though many angels do ask for pro-rata rights and participate in later rounds).

3. Investment terms
   VCs give bigger checks, have the ability to invest in future rounds, and so have a bigger impact on your startup. Many of them will ask for more control in exchange. That could be good - bringing in proper governance, systems, and experience, a good VC will help you grow and evolve.
   But be careful - many founders agree to terms they later regret. We’ve all heard sob stories of founders who worked hard for years bringing their startup from naught to exit, only to discover that the preferred shares of their early-stage VC investors left them with little to nothing to show for their success. Done properly, raising from angels leaves more control in the hands of the founders, and that is something you should always be mindful of.

4. Runway and speed
   If you are in a hard spot (many startups are these days), and your runway is getting shorter, angels are a better option. Angels can make quick decisions. Even better: a syndicate led by an angel deciding on their own, but bringing in bigger cash through the power of their network.
   Many angel investors don’t require deep or detailed due diligence processes and will move ahead if they personally connect with the founders. VCs will usually take more time to write the check; they have a fiduciary responsibility to their own LPs and have their due processes.

5. Angel trouble: Nudniks, bad rep, cap table hygiene
   Angels or VCs, you should always go only for investors that you trust and have a good reputation. That being said, angels are by definition less professional than VCs, and so there is always a risk of taking in an investor who doesn’t understand how startups operate and makes too many demands and inquiries, taking up time and attention.
   Another thing to be wary about regarding angels is their influence on potential investors joining you in future rounds. Some VCs will not invest if a cap table is full of unknown names. A long or messy cap table can also drive away potential lead investors from your next round. Be sure you are managing your cap table wisely, and keep cautious about who you allow to join you as an investor.

6. Market mood
   Finally, you should be aware of the current state of affairs in the markets in general, and in your domain in particular. During a market downturn, less capital is available, and fewer venture capital firms operate successfully. VCs aren’t able to raise money from their LPs, and many of them shrink or die out. In such times, angels will be easier to find and connect with.
   If you are in a “hot” market, VCs might be eager to invest, and their bigger checks will help you move faster in a competitive market.