I must hear it every day. Should you raise your seed round with a few Business Angels (BAs) or should you raise with a Venture Capital Seed fund?

I am obviously biased since I work for a VC fund, but I once raised money from Business Angels as an entrepreneur, so let’s summarize the pros and cons of each.


Business Angels

Pros:

  • ⌛ Process typically quicker. Can be convinced and committed in one meeting.
  • 👔 Due diligence easier (if any). The BA often bases its decision on the entrepreneur or another Business Angel.
  • 💰 Money wired faster. BAs have fewer legal restrictions than funds.

Cons:

  • 👔 Due diligence often too light — do the BAs really understand the pain point and therefore can they really help you?
  • 💳 BAs typically cannot lead a Series A round and the team will need to go on the road again to find a lead. Fundraising process (Seed + Series A) might take longer in the long run.

Venture Capital Seed Fund

Pros:

  • 🧱 Fund will bring a need to structure financials, accounting, and reporting. These habits will prevent future errors and prepare company for future fundraising.
  • 😎 Fund brings notoriety (previous deals, investment directors, existing LPs, media connection) to deal. Could create a virtuous circle around startup.
  • 🤑 Assuming good numbers, future fundraising have became just a bit easier. A Series A fund will see another VC fund having vetted the company 18 months ago as a plus. Brownie points when the seed fund decides to reinvest.

Cons:

  • 🕰️ Process often takes longer. Verify with other portfolio companies.
  • ✒️ The fund’s legal obligations (with financial authorities) create additional work for you as an entrepreneur with regards to reporting.
  • 😠 Your new partner (the investor) is often more exigeant than a BA. Also he’s likely more influential with regards to the fundraising space.

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