Which way should I go, VC or angel investors’ money or customer funding?

The reality is, few folks have all 3 options available to them:

  • Most startups cannot attract venture capital, at least not in the early days.
  • Most startups can find some angels to invest, but not always enough.
  • Many startups cannot find a way to self-fund / customer-fund to extend a long-enough runway to achieve success.

So the reality is, which funding options you have in the early days … is sort of rarely completely up to you.

But assuming you have all 3 options, the choices are fairly simple:

  • VC capital is usually the fastest, simplest way to raise a significant amount of money. VC funds, depending on their size, can write checks of $250k-$25m in 30 days, sometimes faster. If you want to get it done quickly, in one fell swoop, and a VC is willing to fund you — that’s one of the key advantages right there.
  • Angels generally ask for less / no control (although not always). Some angels are very aggressive on terms and control, for sure. But the classic Silicon Valley angel investing $25k-$100k each usually do not seek all that many rights or control. Just a price.
  • Customer/self-funding almost always takes longer. Often, 3–4 years longer. That extra capital in the early days really can help. Atlassian, Qualtrics, Medallia and other SaaS leaders all became unicorns without any early stage venture capital at all. But it took them longer. Does it matter? It depends on the competitive landscape, your patience, and more.

The bottom line is no one even looked back and wished they’d taken more dilution. But also in SaaS, few CEOs and founders look back and wish they’d raised less. They almost always wish they’d at least raised 25%-50% more than they did, to grow faster, make those few extra hires in the early or middle days.

So that’s the tough balance.

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Published on July 3, 2018

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