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Angel investing vs. venture capital - AskAVC #20 - YouTube
Channel: Ask A VC
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hey everybody
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welcome back to ask of ec my name is
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ryan floyd
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i'm a partner at storm ventures and one
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of the questions i'm often asked is
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what's the difference between
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angel investors and venture investors
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there's three main differences
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speed check size and strategy
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but before i go into those i want to
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define
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an angel investor versus a venture
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investor and the biggest difference
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between the two
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and i think it drives a lot of the
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differences in terms of their strategy
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is whether or not you're investing your
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own money or you're investing
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other people's money in the case of
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venture investors
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i'm managing a fund i've taken a lot of
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money from lps
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and i'm investing that on their behalf
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and trying to drive a return
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in the case of angel investors most of
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the time
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they're investing out of their bank
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account sometimes
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they're working as a group in a
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collaboration
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but it's usually their decision as to
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whether
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or not they invest and they're really
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not accountable to anybody else
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other than their spouse or their partner
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in terms of that financial decision and
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i think that drives fundamentally a lot
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of the differences
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in the strategy so let's first talk
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about
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check size so
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because an angel investor is investing
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out of their own bank account
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generally checks tend to be a bit
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smaller
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in my experience angel investors tend to
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be investing
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10 to 100 000 per
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investment obviously that depends on the
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angel investor
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a venture investor on the other hand
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generally is going to be investing a bit
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more money
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because they're managing a fund and that
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fund is going to have a certain
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size in order to support the team and
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the economics of a fund
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and it's just really hard to manage a
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lot of very small
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checks now what does that mean to you as
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a founder
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that means if you're raising 250 000
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raising from a venture fund might be
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tricky because they may not be
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interested in investing that small
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amount of money
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an angel investor in that case might be
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a much better target
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the flip side of that is if you're
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trying to raise five million
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fifty thousand dollar checks is going to
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be very tough
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because it's just going to take a lot of
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them to get to the number you want to
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get to
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the second difference is strategy
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so angel investors tend to focus on
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either individuals and people that they
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know
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founders they know or markets they're
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very familiar with and that's
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understandable
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because it's not their day job right
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they're usually very focused on
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their job doing whatever they're doing
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and so
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they want to be investing in people or
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markets they understand because
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venture is a very risky business
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venture investors on the other hand
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are investing in entrepreneurs all the
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time that they've never
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met before that's certainly true in
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storm's case
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and we're investing in businesses that
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were not
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super familiar with the markets either
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we're very confident about is two things
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in the case of storm at least one is
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b2b sas and the second is go to market
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and how to make companies successful so
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our strategy
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dictates a lot of what our
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investment initial investments then will
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look like as a result
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so it's important to understand the
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difference between what an angel
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investor is looking for and a venture
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investor is looking for in terms of
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their strategy for you as a founder in
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terms of what you want to target
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the last difference that i think is
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really substantial is speed
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because an angel investor is investing
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out of their own bank account
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they're able to make investment
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decisions very quickly
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often in a single meeting a venture
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investor on the other hand
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is going to have to do some work i'll
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tell you at storm
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there's no investment decision that we
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make without
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anyone on the team doing any work that
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would not
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get off first base part of it is because
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we're a team
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and we all push each other very hard in
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terms of trying to understand the
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relative merits of any investment that
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we make
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and part of it is because we're managing
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other people's money and we need to do
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our work
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so understanding relative speed is also
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important as a founder i think in
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understanding the difference between
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angel and venture investing
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i also want to hit on a couple of myths
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i think
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often people say one difference between
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angel investing and
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venture investing is the value that a
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venture investor can bring
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and i'll tell you i think that's garbage
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often angel investors are fantastic
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advisors to businesses
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and venture investors are duds
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and sometimes venture investors are
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fantastic
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and angel investors don't even return
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your emails
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so it completely depends on the folks
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that you work with
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but to make some kind of blanket
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statement that one's better than the
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other
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it's ridiculous some of the
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best co-investors that i've worked with
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over the last 20 years
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have been angel investors who devoted
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the time who have been committed to the
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companies that they've invested in
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and likewise i'll tell you there's some
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angel investors i've worked with over
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the years that have been
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terrible who have put in money and then
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have just been obstacles
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but the same is true on the venture side
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you might think because
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a venture investor their job is to
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invest and their career depends on your
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success
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you might think that they're going to be
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the best
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sometimes that's true but not always
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so there really is no substitute for
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knowing your investors
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and i guess that's the point of the
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video know your investors
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know who's putting money into your
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company know that they have your best
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interest is hard
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and things probably will work out i
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appreciate you watching
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please subscribe hit the like button
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send me your suggestions on new videos
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new things you'd like to hear about
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until next time
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thanks a ton
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