I think in most cases, it boils down to Next Round Risk.
If you raise money from top or even top-ish brand VCs at a reasonable valuation, you usually get at least 2 benefits:
- Top VCs are Good for a Second Check if you are doing OK / decent but not great yet. If you do OK, top VCs will often write a smaller second check if you need it down the road. If you do terribly and/or fail, that’s something else. But if you make some progress, top VCs save a little extra cash to help you get to the next stage. Angels almost never do unless you are doing incredibly well, in which case you don’t need them again anyway.
- Top VCs easily recruit the next round VCs for you, or at least help a lot. The next round VCs all want to “follow” the top VCs a stage earlier. That alone means you’ll have a much easier time raising, all things being equal, with a top VC already in. Note this really only holds for seed funds with a strong brand. Funds that lack brands may have trouble helping you with the next round. Ask who they’ve done this for, and find out if it’s true.
And bear in mind:
- A “too high” valuation from angels may discourage VCs from investing afterwards. If you convince angels to raise at a much, much higher price than VCs would invest, that can be great. But unless you are a rocket ship, it could be a real issue in the next round. Again though if you 5x-10x your valuation in a year and are the next Slack, it won’t matter.
The bottom line is if you don’t need capital again, or at least not for 2+ years, maybe take the angel money if it’s at a much higher price. Because if nothing else, then you can raise more money for the same dilution. In SaaS especially, that’s valuable.
But if you’ll need more money soon, and think it may take a little time to become a rocketship, then this strategy is risky.