Although there are sometimes reasons (documented in Part One) why early stage investors may feel they haven't been properly compensated for taking the majority of the early risk in a business in return for early capital, VCs and Angels often complement one another to take firms through to their later stages ahead of an IPO or, more frequently, a trade sale form of exit.
VC groups can find angel syndicates or individuals valuable in telegraphing interesting propositions for them as those businesses acquire a longer history, larger staffs and demonstrable earnings and profits growth as they expand rapidly.
Its a people business, founded on friendships, networks and knowledge of every type across all sectors of the early stage business ecosphere.
Here are just 9 reasons founders & angels may have good reason to thank Venture Capital firms:
- They prod the business into a whole new ballgame and scale. Angels like VCs do not commit even patient capital to enable a founder to run a 'lifestyle' business with a gentle upward or flat growth curve. It is risk capital, with other potential homes after a 5-7 year exit horizon. With only a distant chance of dividends, funds were not usually committed for the purposes of an evergreen, low growth 'zombie' company
- They sharpen a founders focus on a deliverable exit. Its fair to say that VCs, who need to satisfy demanding mandates on behalf of their liquidity providers will ensure that founders examine their exit options as efficiently and in as timely a manner consistent with the max possible exit multiple
- They kill a zombie company so all can move on
- They have 10 times the exit experience of most angels or founders, bringing definitive expertise to that area.
- They have 10 times the financial firepower of most angels or syndicates. This , despite their own sometimes long due diligence or legal process can cut through delays created elsewhere when angle syndicates have to be grouped to achieve critical funding mass
- They have focused and deep sectoral experience
- Their DD is exhaustive and searching in parallel co-funding. This may add time, but ensures strong process over Shareholder Agreements.
- They compete with each other to force the best deal for earlier stage holders - this is not frequently highlighted but valuable nevertheless
- They clean up a messy cap table or sloppy Shareholder Agreements. When agreements may sometimes be quickly put together with Angels and amid inconsistent diligence, the involvement of dedicated external resources can add value and represent an exit for Angels ahead of a period when few would be able to avoid dilution anyway, so they can get on and re-assign capital to newer businesses.
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