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Angels replacing Seed VCs?
One trend that I’ve been observing lately is a rise in the number of small angel rounds at the cost of larger seed rounds.
In the past 5-8 years (from 2016 to 2021), there were many large $1M+ seed rounds being raised by founders who were looking to deploy capital quickly and gain a foothold in fast-moving markets; today, however, the strategy has changed. With AI tools and overseas workers making it fast and cheaper to take a company from idea to Series A, many founders are completely bypassing the Seed VCs and instead raising smaller $100-200k rounds from Angel investors.
The benefit for those founders is primarily that they can save 10-15% of their equity, which, upon exit as a $1B+ company, could be worth $100M+.
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Strategy for raising $100-200k from angels
The biggest mistake that I find people following this strategy make is that they try to find someone who is capable of writing a $100k check. The reality is that there are few angels that are willing to invest $100k into a single startup. Even those with a net worth of $50M likely don’t invest more than $2.5M (5%) into startups directly. If they wrote $100k checks, then they would be limited to a 25-company portfolio. Instead, they tend to write $5-25k checks, allowing them to spread their investments and get into 100+ companies.
So what you should be doing is targeting $5-10k checks from 10-20 people. This is the best way to raise a $100-200k angel round.
The other benefit of this approach is that you’ll get groups of investors (friends/coworkers) to all throw in $5k, so a single meeting can still get you $15-25k. You can also target more people like former co-workers, bosses, friends, family, etc., who can spare $5k but not $100k.
Would you consider raising a small angel round? |
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