Dan Martell - December 07, 2020


Angel Investors VS Venture Capitalists - Which One Is Right For You？


Episode Stats

Length

10 minutes

Words per Minute

191.31793

Word Count

2,042

Sentence Count

121

Hate Speech Sentences

1


Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

Transcript

Transcript generated with Whisper (turbo).
Hate speech classifications generated with facebook/roberta-hate-speech-dynabench-r4-target .
00:00:00.000 Hi there, Dan Martell here,
00:00:01.140 serial entrepreneur, investor, and creator of SaaS Academy.
00:00:03.260 In this episode, I'm gonna share with you
00:00:04.640 the difference between angel investor
00:00:06.940 and venture capitalists.
00:00:09.240 Super important to know
00:00:10.140 because both of them will give you money,
00:00:12.360 but completely different experiences
00:00:14.240 if you don't understand what motivates each one of them.
00:00:17.620 Be sure to stay at the end
00:00:18.420 because I'm gonna share with you
00:00:19.380 how to get access to my fundraising
00:00:21.080 like a pro training, absolutely free.
00:00:24.240 It's literally responsible for helping startup founders
00:00:26.920 just like yourself, raise, you know, 50K in seed funding,
00:00:30.500 up to 20 million in venture capitalists total.
00:00:33.440 I've helped people raise over 400 million
00:00:35.120 using that framework.
00:00:36.160 I'll share with that later.
00:00:37.340 Let's get into it.
00:00:50.780 So the first time I ever raised money was back in 2009
00:00:54.460 and I raised about 750K for my company Flowtown.
00:00:58.540 And this was like after building three companies.
00:01:01.760 One, I bootstrapped and exited myself
00:01:04.000 and I thought, oh, it's gonna be easy.
00:01:06.000 I wanted to learn how to raise capital.
00:01:07.700 And trust me, it was a completely different experience
00:01:10.920 than what I thought I would set out to do.
00:01:13.780 And it was a lot harder
00:01:14.820 and had a lot of people kind of laugh at our terms.
00:01:17.980 I didn't understand what some of the things
00:01:19.620 they were saying meant.
00:01:21.120 And eventually I got it done
00:01:22.420 and then I did it again with clarity.
00:01:23.720 And the fun part for me is I've helped a lot of SaaS founders
00:01:26.760 out there raise capital.
00:01:28.440 Many of them have been bootstrapped to a certain level
00:01:31.180 and they wanted to raise some angel
00:01:32.600 just to help with some development.
00:01:34.440 Others wanted to go VC round
00:01:36.060 because they wanted to kind of really pour some gas
00:01:39.800 on their fire.
00:01:41.060 So what I wanna share with you today
00:01:42.660 is what I teach my coaching clients,
00:01:44.180 which is how to understand both
00:01:45.760 because both of them seem the same on the outside,
00:01:49.400 but when you dive in, they're completely different
00:01:52.060 and understanding those differences
00:01:53.500 will help you avoid raising money from the wrong people
00:01:56.440 with the wrong expectations
00:01:57.540 and really creating road bumps or speed bumps
00:02:00.880 or roadblocks in your SaaS business.
00:02:03.260 Let's dive into this.
00:02:04.400 Number one, source of money.
00:02:06.500 Where does the money come from?
00:02:07.740 Well, the good news is I can tell you, angel investors.
00:02:11.620 I've invested as an angel investor in 40 different companies.
00:02:15.460 Oh, now even more,
00:02:16.620 because I'm doing about one a quarter.
00:02:18.240 So angel investing is the individual taking their money
00:02:22.600 and investing, buying private stock in companies.
00:02:25.720 And that's how angels source of capital comes.
00:02:28.700 Usually they've done something in the past.
00:02:30.220 They have a business.
00:02:31.440 They're high net worth people.
00:02:32.360 They're definitely high net worth people
00:02:33.340 because it's illegal, I think, for the most part
00:02:35.200 to invest in private companies to take stock
00:02:38.600 without being a credit investor.
00:02:41.260 So that's the angel side.
00:02:43.420 The VCs, which I find fascinating,
00:02:45.440 they raise from other investors,
00:02:48.040 sometimes called the limited partner.
00:02:49.820 So usually the person who starts the venture firm
00:02:52.080 or the fund, they're called the general partner, the GP.
00:02:55.280 And then the LPs are their limited partners.
00:02:57.120 They're the source of money.
00:02:59.300 And the reason why I find it fascinating
00:03:01.500 is because if you think about it,
00:03:03.820 VCs are just like entrepreneurs
00:03:05.880 in the sense that they have to go raise money too
00:03:07.820 to fund their VC firm.
00:03:10.400 Just like you're going out there
00:03:11.660 and maybe asking people for money,
00:03:13.340 they did the same thing.
00:03:14.840 So they, you know, it's kind of neat
00:03:16.900 that they have to feel the same rejection,
00:03:19.320 do the same pitches and try to get people excited
00:03:21.560 about their business.
00:03:23.000 But those are the main differences.
00:03:24.880 Angel, it's their money.
00:03:25.840 VC, it's other people's money.
00:03:27.400 Number two, investment thesis.
00:03:29.860 So when it comes to angels over here,
00:03:32.520 angels, I would say,
00:03:33.880 because I've done a ton of investments,
00:03:36.020 I do it for the fun.
00:03:37.260 I do it to learn.
00:03:38.320 I do it, yes, I wanna make money.
00:03:39.960 It has to generate a return.
00:03:41.640 But for most angels,
00:03:43.400 they do it as almost a way to give back.
00:03:46.700 They do it as a way to learn faster.
00:03:49.980 and they do it in a way to essentially create
00:03:53.220 a portfolio of companies that are high growth
00:03:56.260 because they're busy typically
00:03:57.640 with their primary income business
00:03:59.360 and they just wanna have fun.
00:04:01.200 That is the investment thesis.
00:04:02.800 There's no magic to it.
00:04:04.620 They're just like, hey, I've got this extra capital set aside.
00:04:07.500 I wanna be involved in more startups
00:04:09.460 and aligning my money and my time and my advice
00:04:12.920 sounds like a really good time.
00:04:14.580 And that's what Angel's investment thesis look like.
00:04:16.800 VCs, however, their thesis or ideas around investing
00:04:21.080 is very specific.
00:04:22.040 Typically when they raise their fund, their pool of money,
00:04:25.080 they're saying to their investors or limited partners that,
00:04:28.640 hey, I think there's this opportunity in,
00:04:31.040 you know, let's say work B2B SaaS.
00:04:33.680 So stuff that helps the new distributed workforce.
00:04:36.360 There's this new trend in the market, Bitcoin SaaS,
00:04:39.820 drone SaaS, artificial intelligence and big data.
00:04:42.800 There's some kind of specific thesis
00:04:45.120 that they've seen their pitching to their investors
00:04:48.140 to raise the money.
00:04:48.980 So when they're looking at deals,
00:04:50.420 they will have a preference.
00:04:51.820 So you just need to make sure
00:04:52.660 that you're talking to the right people.
00:04:54.480 If it's just a high net worth person,
00:04:56.400 they're just looking to make money, have some fun,
00:04:58.080 learn some stuff from really young motivated entrepreneurs
00:05:01.220 and get it going.
00:05:02.060 But those are the primary two differences.
00:05:03.760 Number three, pitching style.
00:05:05.320 What is it like to pitch
00:05:06.720 those two different types of investors?
00:05:08.660 Well, number one, the angel is very informal.
00:05:11.580 At the end of the day,
00:05:12.480 most of my investments came from an introduction
00:05:15.680 to a phone call, to an in-person meeting,
00:05:17.860 to writing or wiring a check.
00:05:19.280 I don't, I literally don't, I don't know why I did this
00:05:21.160 because I've never actually written a check.
00:05:24.420 Nope, I'm thinking even when I've been investing now
00:05:26.660 for 15 years as an angel investor
00:05:31.000 and I've never written a check, always wire transfer.
00:05:32.940 It's a lot of money, it makes no sense.
00:05:34.800 Anyways, you just wire the money and it's very informal.
00:05:38.840 Usually in today's world, you know, maybe some Zoom meetings
00:05:41.600 but there's some eye to eye, there's some contact,
00:05:43.560 you wanna see the person.
00:05:45.140 On the VC side, it is a bit more formal, it's structured.
00:05:49.840 And most VCs have this thing called Monday meetings
00:05:53.200 and their Monday investor meetings
00:05:54.720 is where all the partners of the investment firm
00:05:57.480 get together and some of the investments
00:05:59.640 that they're considering will come in
00:06:01.020 and actually pitch to the partners, right?
00:06:03.800 Now they'll socialize the idea,
00:06:05.400 they'll have shared it internally
00:06:07.760 with their other partners before you show up,
00:06:09.360 so it's not like it's the first time
00:06:10.560 they're hearing about you,
00:06:11.460 but it is a lot more formal structure.
00:06:13.520 They'll want kind of a pitch deck, et cetera.
00:06:16.440 And it's usually done in an office
00:06:19.700 or obviously in today's world,
00:06:21.300 maybe through, you know, remote meeting tools,
00:06:23.960 but those are the two big differences,
00:06:26.080 informal versus formal pitching styles.
00:06:28.360 Number four, check size.
00:06:29.760 How much does an angel usually invest versus a VC?
00:06:33.080 Well, here's the deal.
00:06:34.600 On average, an angel investor is anybody
00:06:37.560 on the very, very low end, 10K, so $10,000,
00:06:41.220 up to about $250,000, you know?
00:06:43.740 And some angels will give you 500 to a million,
00:06:47.520 but honestly, that's the exception, not the norm.
00:06:50.540 But on average, you can expect just an angel investor
00:06:53.240 to invest that range, 10K to 250K.
00:06:55.920 On the VC side, I would say it's at the 250 level
00:07:00.120 on the bottom end or up to 3 million,
00:07:02.960 especially if you're first time raising
00:07:04.240 and it's like a pre-series A, a seed round.
00:07:07.680 That's about the range of today.
00:07:09.260 And it's changed over the years.
00:07:10.440 Look, I've been doing this for over 10 years
00:07:12.520 on the venture funding.
00:07:14.000 I've done two venture-backed companies.
00:07:15.640 And what used to be a seed round is, you know,
00:07:19.500 dramatically bigger.
00:07:20.660 The rounds are getting bigger, et cetera.
00:07:22.400 But now we're seeing a lot more efficient companies
00:07:25.200 getting to a higher level of traction.
00:07:26.920 So sometimes their level of traction
00:07:29.040 versus the amount of money they need is a lot lower.
00:07:31.100 So, but on average, you can consider VCs
00:07:33.160 to be between $250 and $3 million check sizes.
00:07:36.420 Number five, investment filter.
00:07:38.640 What do these two different types of investors look for
00:07:41.780 in regards to making a decision?
00:07:43.940 Well, the angel investor,
00:07:46.000 I mean, the cool part is,
00:07:47.000 is that if you can get a high net worth individual
00:07:48.740 like myself excited about your idea
00:07:50.540 and understanding the team
00:07:51.780 and the market experience you have
00:07:53.060 and all these things,
00:07:53.700 the total addressable market
00:07:54.740 and kind of your unique angle,
00:07:57.040 I've seen people raise money
00:07:58.700 with just a story and a prototype.
00:08:00.440 Literally, here's the story.
00:08:02.360 This is where I think it could be.
00:08:03.820 This is the prototype that shows you the functioning,
00:08:06.140 you know, code working
00:08:07.200 and very little traction or revenue, right?
00:08:10.780 Now, ideally, the more you have,
00:08:12.340 the better it is for angel investors.
00:08:14.080 But the truth is, is a lot of angel investors,
00:08:16.120 they're high risk people.
00:08:17.680 They're okay rolling the dice on, you know,
00:08:20.480 a family member or a friend or an introduction
00:08:22.540 that doesn't have a whole lot today,
00:08:24.580 but there's the essence and the seed of possibility.
00:08:27.960 On the VC side, not the same, all right?
00:08:30.860 The VC side wants to see a thing called traction.
00:08:33.460 The only part is most of them can't tell you
00:08:35.040 what traction looks like.
00:08:35.920 Here's the deal.
00:08:37.120 They wanna see revenue,
00:08:38.600 typically revenue generating product and market,
00:08:41.260 a team formed to kind of build this thing
00:08:45.040 that you're building.
00:08:46.080 But the real thing when they say traction,
00:08:47.640 they mean momentum.
00:08:48.420 They mean what I call performance over time.
00:08:50.340 If performance is on this axis and time is on this axis,
00:08:53.160 every time they meet you might be two, three, four times
00:08:55.700 that you're making forward motion, you're creating momentum.
00:09:00.140 That's what traction means.
00:09:01.320 Just because you have traction today,
00:09:02.420 but then you had less traction
00:09:03.700 and then more traction previously,
00:09:06.040 it's a negative investing signal.
00:09:08.400 So that's what they mean
00:09:09.820 is they wanna see forward momentum.
00:09:12.180 They wanna see performance over time grow.
00:09:14.000 And that's the level these people will do it on story.
00:09:17.360 The VCs want prototype and traction.
00:09:20.000 So quick recap, the difference between angel investors
00:09:22.160 and VCs, venture capitalists,
00:09:24.320 source of money, personal versus LP,
00:09:27.240 investment thesis, fund versus specific,
00:09:29.520 pitching style, informal versus formal, check size,
00:09:33.040 maxes out on the angel at 250,
00:09:34.640 starts at 250K, up to 3 million for the VCs,
00:09:38.480 an investment filter, story and prototype on the angel,
00:09:41.960 and then traction and momentum on the VC.
00:09:44.440 As I mentioned, beginning of this episode,
00:09:45.920 I wanna share with you the fundraising like a pro training
00:09:49.440 that I put together for my coaching clients.
00:09:51.460 It is absolutely free,
00:09:53.020 and click the link below to get access to that.
00:09:55.420 Essentially, I go through the three primary phases
00:09:57.940 of fundraising.
00:09:58.860 The first one, which nobody even knows about
00:10:01.100 is called pre-marketing.
00:10:02.880 And how do you set the foundation
00:10:04.220 to actually get a bunch of investors saying yes
00:10:07.000 to close your round with speed
00:10:09.400 and make sure you complete the round
00:10:11.320 and you never wanna raise less than you set out to do.
00:10:13.960 So be sure to click the link below to download
00:10:15.800 or watch that training.
00:10:18.000 It is free.
00:10:19.000 If you like this video,
00:10:19.700 be sure to subscribe to my channel,
00:10:21.700 smash the like button
00:10:22.780 and be sure to share it with anybody
00:10:23.900 that you think is struggling
00:10:25.240 with trying to understand these two things.
00:10:27.000 and as per usual I want to challenge you to live a bigger life and a bigger business and I'll see
00:10:31.220 you next Monday. Have you ever seen the Saturday Night Live scale with the V, the deep V, the double
00:10:36.280 deep V, the vault? We're going to the vault for the V, the V-neck? It's awesome.