5 reasons why we preferred local Business Angels over an international VC

Von Protonet Team. Veröffentlicht 27. Juli 2013.

When startups are looking for money, they are putting lots of options on their agenda. Friends & family, crowdfunding, angels, VCs or bank loans are just a few. For our recent round, we decided to work with business angels, even though we had a rough hand full of VC term sheets. Both can be good options, but it’s important to review your case. Here we have five arguments that show you why angel money might be the right thing for you.

1. Little bureaucratic hassle

Unless you are not dealing with super-angels, private investors are usually more open to an investment without your startup needing to fulfill tons of specific steps. Term sheet, due diligence and legal fixes are much more flexible and therefore a possible advantage for your startup – as long as you are a good negotiator! It all draws down to more common sense and is less conditioned from past experiences so you can really concentrate on what is important to you, may it be a good valuation or the frequency of board meetings.

2. Local means better communication

Since we are always looking for strategic benefits, we were not only hunting for cash. Getting support from an investor and being able to see each other all the time can be worth a lot. As an example, introductions for talent recruiting and (if you are in this area) hardware suppliers as well as good local media partnerships can push for better results at the end of the day. It also gives your investor a better feeling of your mood and hurdles if he can check in to your office by chance.

3. Less pressure from the people that don’t know your business

Let’s face it – everybody treats investors like super important people – because they are. They help you to cover your costs. Without them, you could not survive the time you don’t make enough cash, so you have a personal interest to make them happy and fulfill their needs. But there is also one thing most people tend to forget: investors usually don’t know your business. You are the one talking to the customer, hiring people, writing code. If a VC gives you pressure because he is not in the loop (which is often the case), you have to spend time to deal with communicating instead of really working on the problems you face. An Angel who is close and has bought himself into your vision and not into the business-case will still kick your ass, but also be more interested in long term success.

4. Own money

Angels bring private money to the table unlike VCs. VCs collect money from other people to invest (which gives them a bigger leverage). There are exceptions to this, but think of it from a psychological point of view: losing all your own money feels worse than loosing the same amount of money from a bigger fund. The investor still has his income, and its calculated risk! It’s their business model to get one shot out of ten. This is why an angel will have a bigger intrinsic motivation to get your startup off the ground.

5. For risky and innovative ideas – buying into your vision

Take Protonet’s example: basically running against one of the top trends (anti-cloud computing), doing something everybody says is nuts (hardware), doing it in a way everybody says is too expensive (Made in Germany) and doing it individually for every customer (not scaling in the usual way). We’ve gotten lots of “no, thanks” from people who don’t take their time to check out the vision. And we understand: what person would not invest 100K into a proven model with a relatively predictable ROI if you just put in the money? But there’s something people tend to underestimate: the vision of the company is soo (sooooooo!) important, if you are in risky business. It guides you through all the rough times and let’s you believe in what you are doing by heart & soul and not just by brain. An Angel will be more open to your vision and will therefore be in it for the long run.

To make it clear at the end – we are not opposing VCs. As we develop in size, VCs become more and more interesting for us too, of course. There is a great number of funds out there that offer great value for endless amounts of ideas. It’s a matter of “when to do what”. We also know that there are lots of private investors that are not accountable and cannot help you on a strategic level. It’s your job to find out!

imagecredit: dreisechsnull.telekom.de