Results Junkies - The difference between angels and VCs.

Whoa.

A shit-ton (that's a real number) of you replied to that last email and called me out for not explaining myself better. Sorry.

POP QUIZ: what's the difference between an angel and a VC?

...

ANSWER: An angel invests their own money and a VC invests other people's money.

This is an important distinction. Especially since there are so many other marketing terms thrown around today. (e.g. super angel, micro VC, seed fund, etc.)

Angels invest their own money. And this makes them a bit unpredictable.

They can invest for any reason under the sun. They can also pass on a deal for any reason under the sun.

I'm being totally serious. They could choose to invest because they have a crush on your mom. They can pass because Mercury is in retrograde. They can do whatever they want and whenever they want -- and they don't really have to give you a reason for any of it.

Venture capitalists (VC) invest out of a fund. This fund sometimes includes a little bit of their own money but it's usually 99% other people's money. And once you start managing other people's money, you're regulated by the government (👋🏼 to my friends at the SEC!) and fiduciary duty comes into play. In plain english, what this means is that their behavior towards you (the entrepreneur) is much more predictable.

If they decide to invest in your company, it's because they believe that the investment brings the possibility of a return that could be 3X-5X the size of their fund. If they do anything else (ie, go quiet on you or tell you a hard "no"), it's because they don't see any possibility of cash coming back to them.

THIS IS SUPER IMPORTANT. RE-READ THE LAST TWO PARAGRAPHS.

When it comes to angels, it's often hard to understand their decision-making process. When it comes to VCs, their decision-making process is pretty clear: if they don't understand how they'll make money on the deal, they're not doing it.

If you can wrap your head around that, you're in a much better position to improve your pitch and close some real money.

-P