What’s the difference between an angel investor and a venture capitalist? | Money Talks podcast

Summary

In the 'Money Talks' podcast, Andrea Hang discusses the intricacies of entrepreneurship and funding with Vanessa Ho, co-founder of fintech nation. They explore the differences between angel investors and venture capitalists, the strategies for pitching to them, and the expectations for returns. Ho emphasizes the importance of due diligence, the value of strategic investments, and the reality of startup failure. The conversation provides insights into the world of personal finance and the entrepreneurial journey.

Takeaways

• 💡 Entrepreneurs often face difficulties raising funds from banks due to the lack of track record and incorporation time.
• 🚀 Angel investing is compared to investing in individual stocks, while venture capitalism is likened to a diversified portfolio like mutual funds or ETFs.
• 🤔 Angel investors tend to invest based on personal understanding and the ability to add value, often without a structured mandate.
• 💼 Venture capitalists operate with a clear strategy and investment mandate, aiming for stable returns similar to a TV actress following a script.
• 🌟 The potential for high returns in angel investing is offset by the low probability of success, with the hope that one or two 'moonshot' investments will carry the entire portfolio.
• 🧐 Personal connection and familiarity with the industry are significant factors for angel investors when choosing startups to invest in.
• 👥 The personality and character of startup founders weigh heavily in the decision-making process for both angel investors and VCs.
• 🔍 Experienced investors rely on their network for reference checks and due diligence to identify the right characteristics in founders.
• 🤝 The level of involvement from angel investors and VCs can vary, but proactive communication from founders is key to leveraging their networks and expertise.
• 📈 The benefits of angel investment include personal support and referrals, while the downsides include smaller ticket sizes and potential for demanding investors.
• 🏦 When a startup fails, the assets are liquidated, and the funds are returned to investors according to the liquidation preference outlined in the term sheet.

Q & A

What is the primary topic of the 'Money Talks' podcast episode featuring David Gun from Tipsy Collective?

The primary topic of the episode is about entrepreneurship and the challenges of raising funds for a business, specifically discussing the experiences of David Gun from Tipsy Collective.

Why did banks refuse to provide loans to David Gun and his late partner when they first started Tipsy Collective?

Banks refused to provide loans because they lacked a track record and their company had not been incorporated for a long time, which is a common issue for new entrepreneurs.

What are the two main sources of funding for entrepreneurs mentioned in the podcast?

The two main sources of funding mentioned are Angel Investing and Venture Capitalism.

How does Vanessa Ho differentiate between Angel Investors and Venture Capitalists?

Vanessa Ho differentiates them by comparing Angel Investors to social media creators who can invest in various things without a structured mandate, while Venture Capitalists are like TV actresses who follow certain branding guidelines and investment mandates for stable returns.

What is the main strategy for Angel Investors when choosing companies to invest in, according to Vanessa Ho?

Angel Investors often invest in areas they understand and where they can add value, but they may not have a clear strategy or formula. They might invest in one deal out of many they see, hoping for a 'moonshot' success.

What are the three main character points Vanessa Ho looks for in startup founders?

The three main character points are team dynamics and product fit, character and values, and signs of operational and executional capabilities.

How does Vanessa Ho suggest verifying the legitimacy of potential Angel Investors or Venture Capitalists?

Vanessa Ho suggests verifying their identity through a corporate secretary company, doing reference checks, and ensuring they are accredited investors if investing directly in Singapore.

What are the pros and cons of raising funds from Angel Investors according to the podcast?

Pros include the potential for strategic referrals and emotional support. Cons include smaller ticket sizes which can lead to more time-consuming fundraising processes and potential for demanding or overbearing investors.

What is the difference in ticket sizes between Angel Investors and Venture Capitalists?

Angel Investors typically invest smaller amounts, often in the sub 50k range in Singapore, while Venture Capitalists can invest much larger amounts, from 100K to several million dollars.

What happens to the funds invested by Angel Investors or Venture Capitalists if a startup fails?

In the event of a startup failure, there is a liquidation process where public assets are liquidated and the remaining funds are dispersed according to the liquidation preference outlined in the investment agreement.

What advice does Vanessa Ho give to startup founders regarding their pitch to Angel Investors or Venture Capitalists?

Vanessa advises that the pitch should be tailored to the individuals being addressed, concise, and focused on selling the founder's capabilities, especially in early stages. It should also consider the technical expertise and interests of the potential investors.