Before joining Hustle Fund, I never imagined it would matter how a founder raised money. The important thing is how much is raised, not who it’s raised from… right?!

It turns out that who you raise money from matters. A lot. Today’s edition of The Founder Playbook breaks it down. We’ll cover:

• Pros and cons of raising from angels
• Pros and cons of raising from VCs
• Who should I approach if I’m in the early stages?

Let’s dive in.

Oh and by the way, this article is a summary of a recent episode of Uncapped Notes, our YouTube series that demystifies the world of startups and VC.

Raising from angel investors

An angel investor is an individual that has accredited investor status.

Basically that means they have a million dollars of investable assets, or a really large salary. Angels don’t have to be techies or experts in your industry. They could be your dentist or a friend’s mom.

One of the main reasons to work with angels is that they make decisions about where to spend their money based solely on their own preferences. They don’t have investors to consider, or business-partners to consult, or office politics to deal with.

They can write you a check after one meeting if they like you and your idea. It’s their money.

Angels can help with things other than money, as well.

Many angel investors are experienced operators who can help you solve real problems. So if you need guidance on how to build a marketing team, or input on how to create a product roadmap, an angel who has experience in those areas could be a highly valuable partner.

One thing to consider before raising money from angels is that they typically write smaller checks than VCs. Where VCs might write checks ranging from $50k to millions of dollars, angels tend to invest between $1k to $50k per company.

This means that if you’re raising $1 million, you’ll have to close a lot of deals if you only stick with angel investors.

Another downside is that angels might not be able to follow on in your later rounds when the check sizes get bigger and the valuations get higher.

Raising from venture capitalists

A venture capital firm (like Hustle Fund) raises money from investors (Limited Partners or “LPs”). Then VCs invest that capital into startups and divide the returns among all the LPs.

VCs tend to write larger checks than angels, ranging from $50K to millions of dollars. VCs also tend to set aside capital to participate in their portfolio’s later rounds.

VCs are also extremely well-connected. VCs often introduce their portfolio companies to other VCs, to potential business partners, and even potential hires. In later stages, VCs can also be great board members to help guide the next chapters of the business.

The downside is that VCs have investors that they have to consider.

As stewards of other people’s capital, they’re obligated to invest only in deals they truly believe will give them a 100x return.

Angels, on the other hand, aren’t generally looking for a specific ROI. If they love you and your idea, they may invest even if they think they’ll only get a 2x or 3x return.

The VC industry is also notorious for putting pressure on founders to raise capital and grow at a certain pace because VCs need to show returns to their LPs.

So… who should you raise from?

If you're a pre-seed founder, we recommend working with angels. They’re more accessible, will give you money faster, and often roll up their sleeves to help your startup. (Pro tip: Hustle Fund does this too, even though we’re a VC fund).

If you’re in the later stages, VCs tend to make more sense since they can provide you with more money and direction when you’re scaling fast.

Until next time,

Tam “angelic” Pham