I wanted to talk to Nexit Ventures, as the year is about to come to an end, about the differences between angel investors and venture capital – how should the entrepreneur view the changing financial market, as well as what are some of the basic rules in deciding which of the alternatives in financing should the entrepreneur go for. We came up with five basic rules that differentiate angels from venture capital. Naturally these are simply generalisations and there are exceptions as always.
Firstly – the size of the round an entrepreneur is seeking is perhaps the biggest differentiator. The magic line goes somewhere around the 0,5 million euro area. Some seed funds and good relations with a venture capital fund might help here. This is perhaps the area that is also the most turbulent at the moment – more and more venture capitalists are seeking smaller deals and thus increasingly competing with angel investors.
Next in line is the total amount of financing needed. If this figure is less than 2 million euros, there generally isn’t need for investors. Keep in mind, this is Nexit Ventures’ view and overall views may differ. However, according to Nexit Ventures, this is where many entrepreneurs get it wrong – they are overly optimistic about their venture and can seriously under estimate the total need of financing.
Thirdly, your exit intentions determine how you should seek financing for your company as well. If you are planning to exit your company at around 10 million euros, VCs aren’t usually interested. Venture capital wants to exit usually at around 50+ million euros. Larger funds have larger exit plans, naturally.
Experience comes next. If you are a serial entrepreneur, you’re more likely to appeal to venture capitalists – you’ve proven your skills to a certain degree. Most likely, you’re also able to avoid the biggest potholes but you’ve also managed to grow your network – both which will help you succeed the next time round.
Finally, geographies play roles as well – even on a Nordic level. For example, in Sweden, angel investment activity is a lot more developed than in Finland. Naturally, the US is on a level of its own in angel activity – organised investment activity dollars match the venture capital investment activity.
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Nexit Ventures is a mobile venture capital firm focused on wireless technologies and services. Leveraging its extensive network in the global mobile marketplace, Nexit invests primarily in Nordic and US-based earlystage companies with products and services for a global market. For Nordic mobile companies, Nexit provides a bridge to Silicon Valley markets and exit opportunities.