Angel investors vs venture capital: which one fits your startup?

The SEC defines angel investors as high-net-worth individuals who invest their own money directly in emerging businesses, typically in early funding rounds. It adds that angels often bring strategic industry knowledge, taking an active role as a director or advisory board member.

They are different from a friends and family round: the SEC says most friends and family invest because of their relationship with the founders and do not bring strategic industry knowledge. And because many securities exemptions limit participation to accredited investors, an angel's status matters: for individuals that means net worth over $1 million, not counting their home, or income over $200,000 ($300,000 with a spouse or partner) in each of the last two years.

The SEC describes a venture capital fund as a type of private fund that typically invests in rapidly growing companies, often with a specific industry focus, bringing strategic guidance, connections to other investors and customers, operational guidance and help with hiring. The SBA describes venture capital as invested in return for equity, rather than debt, normally with an active role in the company.

Two instruments you will meet in early rounds: the SAFE, which Y Combinator defines as a short contract to fund a startup now in exchange for the right to shares later, and the convertible note, a loan that can convert into another security, which the SEC says is often used in seed rounds. Either way, it is a securities offering.

There is no rule that says a company should raise from one or the other, and this page will not pick for you. These are the questions that usually decide it:

• How much control are you prepared to share? A fund's board seat is a real change in how decisions get made.
• How fast is the company meant to grow? Venture funds look for rapidly growing companies, in the SEC's words, and plan around that.
• What do you need besides money? Industry knowledge from one person, or a fund's network and support.
• Who do you already know? Introductions can come from founders, advisers and investors in your network.
• Which instrument and which exemption? A qualified securities lawyer should answer this before anyone signs.

Nothing requires a round to be all angels or all funds. A funding round, as the SEC defines it, is money raised from investors on the same or similar terms in a set period. Ask your lawyer how mixing investors affects the paperwork.

• Your own network first, then founders who have raised from angels and can introduce you.
• Local angel groups and university or accelerator networks. Check each one's site for how it takes applications.
• Firms that describe themselves as pre-seed or seed investors, which you can filter in our directory of pre-seed and seed investors.

Whoever you find, check how they want to be approached and whether they meet the rules for the exemption your round uses.

Angels and funds both look a company up before they meet it, and what they find is the marketing: the site, the content and the founders' public presence. That work is for customers first. If the marketing is on your list too, our page on marketing for technology companies explains how we work. We do not make investor introductions.