What’s the difference between angels and seed VCs?

I was in Atlanta this past week and spoke at an event about raising capital.  One of the questions from the audience was really interesting:

What’s the difference between angels and seed VCs?

If you had asked that question 5 years ago, the answer would’ve been really different.  It would’ve been something like:


  • Use his/her own money to do investments
  • Write small checks
  • Mostly sole decision maker


  • Use 3rd party money to do investments (from limited partners)
  • Write large checks
  • Multiple decision makers and a concrete process

But today, some of these things have changed.

Originally posted by dokyummm

A lot of new micro VCs have popped up (500 Startups is one example).  They write small checks – typically between $50k and $300k.  They also make decisions really fast because they typically have only 1-3 decision makers in their process.

Through the rise of syndicates, angels are now more akin to VCs.  They can write much bigger checks through essentially a band of angels coming together on a deal.  A couple of Gil Penchina’s AngelList syndicates, for example, rival big series A firms; he has millions of dollars to do a deal.

On the surface, there is seemingly little difference between angels and micro VCs these days.

There is one big difference: where the money comes from.

As entrepreneurs, we don’t usually think about where our investors’ money is coming from, but in this case, it matters a lot.

Originally posted by cutepsychx

Let’s say I start a VC firm called Hippo Fund.  Whether it’s a micro fund or not, I need to raise money from 3rd party investors (Limited Partners) and convince them that Hippo Fund is going to make them A LOT of money.  Like I mean A LOT.  Potential limited partners are weighing their options – “Should I invest in Hippo Fund or in NYC real estate?  Or should I invest in someone else’s VC fund?”  The decision is not about whether investing in Hippo Fund will be profitable; it’s about whether it is THE BEST INVESTMENT for your money.

This means that in running Hippo Fund, I need to make big big bets that could either go nowhere or be the next Google.  Entrepreneurs often complain about why VCs seem to make stupid investment decisions – i.e. pass on profitable growing businesses but bet big on companies that make you wonder what people are smoking.  This is where these decisions comes from.

Originally posted by vhs-ninja

On top of that, because Hippo Fund needs to swing for the fences, most investments will fail.  If 9 out of 10 portfolio companies fail, then the 1 winner will need return a LOT in order to make up for all our losses.  A winner who returns just 10x will get us to not quite break-even on the whole portfolio; this is bad.  (As a side note: lots of entrepreneurs pitch their company to me saying they will make us 10x our investment.  Please do not do this . You will lose us money.)  We need our winning companies to be returning 100x-1000x.

Originally posted by jonsabillon

Ok, now let’s say we dump Hippo Fund and instead create an AngelList Syndicate.  I round up a whole bunch of my rich friends to back this syndicate.  So now, for every deal I do as an angel, I share it with my friends, and they can decide whether they want to do the investment.  If I get enough friends to back my syndicate, collectively, we can invest as much as Hippo Fund.

In this capacity as an angel investor, I can invest however I want.  I can decide to invest in companies where I just love the product and think the market is small.  I can invest in companies who have proven nothing (zero traction, etc.).  I can invest in companies because I like the logo.  I can do whatever I want.

My rich friends can decide to join me in my investment decisions or not; that’s up to them.  I no longer have to be concerned with trying to make the most money ever.

Follow the money

Lastly, it’s important to follow the money and see how fund managers are incentivized.

As a VC, typically, I’ll get 20% of the upside on my entire portfolio.  So let’s say I have a fund size of $10m and I have:

  • 10 companies in my portfolio
  • Invested $1m in each
  • 9 of them failed
  • 1 winner that made me $20m.

My upside as a fund manager is roughly ($20m – $10m fund size) * 20% = $2m.

I would personally make $2m for this type of portfolio (assume no management fees.)

Now, what does this look like when running my AngelList syndicate?  Let’s assume the same situation with the 10 deals I did in Hippo Fund.

I still get 20% upside but now it’s per deal and not by portfolio, since my backers can decide for themselves which deals they want to be a part of.  Look at my one winner – the one that made me $20m; now I get ($20m – $1m invested in that deal) * 20% = $3.8m.

So in running an AngelList syndicate, I would personally make $3.8m, because upside in syndicate deals is on a per-deal basis, not a portfolio basis.  I no longer have to consider the losses of the other companies.  This means that I don’t need to think about my one winner trying to cover for all my losses and can invest in the growing profitable companies and not just the “shoot for the moon” companies because I will still make money.

Originally posted by maryjosez

It’s important to understand where the money comes from because this tells you a lot about how fund managers are incentivized.  And as an entrepreneur, you can use this to your advantage in how you message or pitch your company to different investors.

Special thanks to my colleague (and basically brother) Tim Chae for shaping a lot of my thoughts around this when I first jumped into venture.  

You have 10 seconds to get an investor meeting…

Originally posted by justkindahappened

My colleague at 500 Startups pinged me last night with a pitch deck from one of our portfolio companies gearing up to raise a post-seed round.

Gawd it was TERRIBLE.  And embarrassing because they are one of our companies.

Unfortunately, their deck was representative of what I see in about 99% of email pitch decks I receive.

What was wrong?

I couldn’t understand the key components of this business in < 10 seconds.

The disconnect between entrepreneurs and investors around pitch decks is that entrepreneurs often think that investors will spend a few minutes looking at their decks.  In reality, I’ll spend 10 seconds, at best, on an email deck because all I want to know is whether I should schedule a meeting.

This is why I say over and over: you need multiple pitch decks. You’re selling different things at different stages of the fundraising process (e.g., selling the idea of just doing a pitch meeting with an investor vs selling the opportunity to move forward and invest in your company).

Originally posted by televandalist

All I really want to know in 10 seconds can be summarized like this:

  • Team: what are the notable accomplishments and domain expertise of the founders?
  • Problem: what is the big problem you’re solving?
  • Solution: how are you solving it? If you’re in a competitive space, how is it differentiated and 10x better than alternatives?
  • Traction: what are the key performance indicators and how do they track over time? Please don’t include 10 KPIs – the definition of “key” is just that. Only 1 or 2 key indicators are important.  This could be your monthly revenue.  It could be DAUs.  It could be number of email subscribers. Or whatever.  Be selective here. Also, be sure to own up to your traction.  A lot of early teams try to hide it.  I always ask what the traction is even if it’s not included in the deck before taking a meeting. There is no reason to leave it out.
  • Market: I personally care less about this in an email deck because I know I will need to think and digest what the “true market” is only after taking a meeting.  However, other VCs see this as very important in qualifying whether or not to take a meeting.  When you do market sizing, make sure to show visually what niche you’re starting in and what the peripheral larger markets are.

That’s it.  Simple text.  Big font.  Black font with white backgrounds makes for faster reading.  Bullet points and not paragraphs also make readability better.  If a bullet point is too difficult, show it graphically.

After you create an email deck, the best way to test whether you’ve done a good job is to show it to someone – anyone – who knows nothing about your business for 10 seconds.  Then, have him/her rattle off information about the five points above and see what was missed.  If he/she cannot do this exercise well, you know that you need to go back to the drawing board.

You have just 10 seconds to get an investor meeting – make your email deck count.

What you wear does matter when fundraising

“And so I wear glasses when I go into investor meetings in order to look more intellectual and like a legit CTO.”

I was out to dinner in Palo Alto in 2011 with a handful of super smart technical women.  I was the least technical of the bunch (and lucky to get an invite!); I was technical in resume but not a day-to-day engineer like the rest of them.

Originally posted by hiratsukaze

One topic we discussed was our problems with fundraising.  One of my dinner-mates was discussing how it was difficult to establish credibility in investor meetings.  She was the CTO and her male co-founder was the CEO.  Investor meeting after meeting, investors would ask him about how the technology worked even though she was the one who wrote all the code.  One or two well-known VCs they met with did not believe she wrote the code and thought the team had other engineers.

Finally, after lots of frustrations, the two co-founders had a weird conversation:

CEO: “I need you to dress nerdier.  You need to dress like an ‘engineer.’  Can you wear jeans and a t-shirt?  And wear glasses?”

CTO: “I don’t wear glasses.  I don’t need them.”

CEO: “Well get fake ones!”

Although she was apprehensive, she did end up buying glasses for their investor meetings.  The team got funded, and they were on their way.  They would later sell their company successfully two years later to a large tech company in the Valley.

I almost could not believe this story.  And yet, I did.

After I finished raising for LaunchBit in 2011, looking back, I realized that all of my investors whom I met in person met me when I was wearing one particular skirt.  I wore 3 different outfits for fundraising – dress pants, a long skirt, and a tea-length skirt – but only the tea-length skirt led to money.  This is what it looked like:


Like my friend who wore glasses to her meetings, I can’t be sure if it’s coincidence or not.  That said, when you’re doing hundreds of meetings, the data does start to mean something. I certainly didn’t split-test my clothes in a systematic way, and I can’t tell if it was the clothes or my confidence in those clothes affected the outcome.

There are a couple of takeaways from this:

1. What you wear does matter

Even if VCs say they don’t care what you wear, subconsciously, everyone forms an impression of you in the first 30 seconds based on what you are wearing.

Of course, it goes without saying that what you wear should be professional and comfortable.

2. Don’t be afraid to test different outfits

I feel ridiculous writing this point.  I hope in the next 5 years to be able to delete this part of the post.  If you have more fundraising success with a certain outfit, go with it.

I had actually started writing this post in 2011 (special thanks to my friend Omar Seyal for reading drafts of this back then), but I never posted because I felt so uncomfortable writing this.  It’s time to get the dialogue in the open, and I welcome comments below.

Beyond that dinner in 2011, I’ve heard enough anecdotes from other entrepreneurs about fundraising and attire to realize that despite what everyone publicly says, what you wear to investor meetings does matter.

Cover photo by freestocks.org on Unsplash


Why I cringe when you say you’re raising a $1.5m seed round…

“We’re raising $1.5m.”

I cringe.  There’s nothing inherently wrong with raising $1.5m…UNLESS you have not thought about your raise strategically (99.9% of entrepreneurs I meet with).

Originally posted by drunkbroadway

Most entrepreneurs understand on some level that fundraising is all about messaging.  But, most people only think about this in the context of storytelling.  But, messaging how much you are raising and for what specific milestones are equally important.

Let me give you a concrete example.  Here’s a tale of two companies.  Same business but different raise-amounts.

Company A: 

  • Raised a seed round of $500k
  • Now raising another seed round of $2.5m to expand the business

Company B:

  • Raised a seed round of $2m
  • Now raising another seed round of $1m to expand the business

Should both companies successfully raise, they would’ve raised the same total amount of seed money – $3m.

BUT, Company B’s situation yells RED FLAGS all over the place.  As an outsider, it sounds like they burned through a hefty $2m and now are short of Series A milestones that they need another $1m to bridge them through.  And, no investor wants to sign up for a desperate situation like that.

Originally posted by cumayagittikgelecegiz

Company A’s situation sounds much more appealing.  They raised a small seed round – perhaps to get them to some initial milestones, flesh out the idea, get some initial customers.  And, now, they are ready to grow based on what they’ve learned.

Notice we know nothing about these businesses, but I’m already making assumptions about their scenarios.  Why?  Because this is commonly what you see in the trenches as an investor.  And even if Company B is truly growing quickly and is only just a couple of months away from gearing up for a strong Series A, I know lots of VCs who won’t even take a meeting with Company B to hear them out.  That’s just how it is.  Just poor messaging.

As an entrepreneur at the seed level, you need to think deeply about the signaling (and what to do) if you are not able to hit milestones for the next round.  If you are planning on raising $1m-$2m on this round, you had better hit your Series A targets (or get to profitability on this round).  In fact, I call $1m-$2m raises “No (wo)man’s zone”.  You should consider what happens if you fall short of Series A targets, because you will have a super tough time raising from external investors.  Do you ask your current investors to re-up?  Can they?  Can you bootstrap to Series A milestones?  Think about all this BEFORE you end up in a tough situation.

Seasoned entrepreneurs, you should be especially cautious.  As an experienced entrepreneur, the natural inclination is to think, “Oh I can totally hit any milestone – I’ve done this before.  No problem.”  I know – because I’m that person too and think that way too.  But, in my short time as a VC (just 1 year), I’ve seen multiple companies whom I met with at the beginning of my VC career already go out of business or take a terrible acquisition (or are about to), because they didn’t raise enough money to get to series A milestones and raised too much to raise another seed round.  In fact, many of them had businesses that were just beginning to take off, but because of poor fundraising strategy, their companies went under.  They could’ve been amazing businesses.

Originally posted by sizvideos

Additional things to consider:

  • Series A milestones go up ALL the time and are only going up – for example, I met with several B2B SaaS companies a year ago who were able to hit $1m runrate within a year on fast growth but died / were acquired for cheap because Series A milestones were higher than they had expected.
  • Spaces become competitive – when many companies enter a space, investors get very nervous about whether they are backing the right horse; so, you must show above-and-beyond traction to suggest you are the winner; it’s not just about hitting milestones if you’re in a competitive space

So, if you’re super early – i.e. still building product, very much pre product-market fit, don’t have a handle on your unit metrics, don’t know your customer persona inside and out, etc, you should strongly consider raising a smaller round (say < $1m) such that your next milestone is to hit post-seed milestones rather than a series A milestones.  Be strategic and message your raise well.

How to write a cold-email

Building on my link-baity post on the importance and under appreciation of sales, I thought I would write a few posts on sales techniques that have worked well for me over the years.

Have an intriguing subject line

Amidst cluttered inboxes, it is HARD to get noticed.  So, it’s important to have a standout subject line.  The best way to do this is to write something slightly weird.

  • Use symbols.  “?“ is a good one. New customers?
  • Use uncommon words.  Like “tidbit.” Such as Random tidbit?

Build Rapport in 1 Sentence

Once people open your email, it’s important to keep your message short – I use no more than 3-4 sentences in the email body.

I use the first sentence to build rapport – any of these will work:

  • I’m a big fan of your blog
  • Congrats! – I read about your project in TechCrunch
  • I’m a fellow 500entrepreneur
  • We met at the GeoSocialMobileInnovation VC BBQ last summer

It goes without saying that everything you say in your email should be genuine and honest.  If you hate the person’s blog, don’t say you like their blog.

Help Them in 1-2 Sentences

I use the second and third sentences to cut to the chase on why my reaching out can be beneficial to them.  It helps to tie this to something they care deeply about such as vanity or money.   I also throw in social proof.

  • I think we can help you get new customers through our  technology.  We’ve helped a number of companies do this to date including BigCo, SmallCo, and InnovativeCo.
  • I think we can help you increase your profit margin by x%+ and have been featured in BigFamousNews and GossipyTechBlog for our technology.
  • I think our technology can help you increase your traffic from prominent bloggers through our technology which was built at FamousNationalLabs.

I usually use the words “I think,” because I do think my product can help, but I can’t guarantee it.  Again, sales has a bad rep but it’s important to keep things honest.

Have a strong ask in 1 Sentence

Finally, close your email with a solid ask.  The purpose of this email is to pique interest not to sell.  Do you want to meet with them?  Do you want to talk with them over the phone?  Do you want to get in touch with the right person on their team?

  • Use a who/what/when/where/how/why question
  • Have a specific ask – do you want 20 min of their time?  Do you want an email intro?

For example:

  • What is the best way to talk by phone for 20 min?
  • Who is the best person on your team to speak with for 20 min by phone?

I like to keep my emails short, not only to pique interest but also because they can be easily actionable on a mobile phone.

Practice, practice, practice

I used to be really afraid of cold-emailing.  I would get nervous about how people would respond.  Or that they wouldn’t respond.  But after sending about 500 emails, I don’t think twice about it now.  When you start to send so many, you stop caring so much about each one.

I use ToutApp to streamline the cold-emailing process.  It allows me to write my email message just once and helps me send more cold-emails faster.

Lastly, I think my response-rate over all-time and projects is around 25%.  I’d be happy with anything over 10% though.  But, just know that not everyone will write back, so cold-emailing is a numbers game.  Email 10 people if you want a couple of responses back.

What cold-emailing tips/tricks have worked well for you?

Cover image by Matthew Henry at Unsplash.

What traction do I need to raise money?

I’m going to get a lot of flack for writing this post.  Lots of fellow investors are going to DM or email me to tell me that I’m wrong or not accurate.  Guarantee it.  Here we go anyway because in this case, it’s more important to be 50% right than not at all helpful.

Entrepreneur: So what do you think?

Investor: You’re too early.  Come back when you have more traction.

Entrepreneur: Can you give me a sense of how much traction you’re looking for?

Investor: Mmm…there’s no hard and fast rule.

Super annoying!  How are you supposed to know what target to shoot for?  I’ve written about fundraising milestones for SaaS companies before on Jason Lemkin’s blog SaaStr.  Christoph Janz of Point Nine has also written about SaaS funding as well.  In this post, I’m going to generalize it a bit more for other industries.

Let’s first establish what the seed landscape looks like today in 2016 here in Silicon Valley.  Note: the information below doesn’t apply to other geographies, and all of this will probably become obsolete in the next few years.  Roughly speaking, there are 4 stages of early stage investing based on traction:

  • Pre-seed: < $100k net revenue run rate
  • Seed: $100k-$500k net revenue run rate
  • Post-seed: $500k-$2M net revenue run rate
  • Series A: $2M+ net revenue run rate

Note: Your ability to raise is NOT just about your traction.  There are a LOT of other caveats and criteriawhich I’ll go through at the bottom of this post.  So hold your horses before you start tweeting at me!

Originally posted by gurl


New investors tend to do a lot of pre-seed deals when they first get started, but as they get access to more and more dealflow, they tend to move downstream and take on less risk.  My employer, 500 Startups, is a good example of this. A few years ago, we were funding lots of companies that were super early.  Heck, they funded my company LaunchBit when we were basically at the idea stage.  These days, in most cases, 500 Startups is not even the first check in.

Pre-seed rounds today are done by family and friends as well as new investors who don’t yet have a lot of dealflow.   A number of incubators and accelerators will also fund companies at this level.  As a result, this type of round is extremely difficult to do because you either need to be well-connected OR you need to hunt down angels who don’t yet have a brand, which is tough to do when you don’t know who they are.  For this reason, I’m inviting new investors to interview with me on my blog so that they can get more visibility and so that entrepreneurs can become familiar with new investors on the scene.


The seed level is typically comprised of more established angels who have dealflow as well as well-known accelerators or seed programs, such as YC, TechStars, and 500 Startups.


A lot of microfunds have cropped up in the last few years and have established their brands.  They may have started out as pre-seed or seed investors but have moved downstream in many cases.  Part of this is also driven by the fact that, as they’ve become successful, many of them have raised bigger funds, which means they want to deploy more money in startups at slightly later stages.

Series A

This is largely dominated by traditional, well-established Sand Hill Road VCs.  The series A round in Silicon Valley is basically what the old series B round used to be because the traction requirements are often so high to achieve.

On traction

I use the term “net revenue run rate” above to attempt to put all revenue-generating startups on the same standard.  SaaS companies have really high margins, but a marketplace might only have, say, 20% margins.  You can’t really compare marketplace businesses to SaaS – this is an apples to oranges comparison. Even though it’s not perfectly accurate, I’ve found that a rough rule of thumb is to look at net revenue run rate because the bar is roughly the same across revenue generating sectors.  For example, if a marketplace startup has a 20% take between its supply and demand sides, then it needs to do ~4-5x more sales than, say, a SaaS company to be equivalent from a traction perspective.  Again, not perfect, but this rough rule of thumb should give you a sense of what order of magnitude you need to be hitting to raise each round.


Of course, there are a TON of caveats here.  As I’ve mentioned before, each of the 4 categories of startups are looked at very differently.

If you are a business that is immediately-revenue-generating, all that I’ve said above applies.  However, if you are in areas that are, a) highly regulated (such as fintech or healthtech), b) extremely technical (such as only 5 people in the world can build what you’re building), or c) a pure consumer product (e.g. Snapchat), then these traction benchmarks don’t apply.  Investors will look at other things such as your user growth, your prototype, or how you’re navigating regulations.  Those are much more subjective and hard to distill into numbers.

Moreover, even if you are an immediately-revenue-generating-company, just because you hit a certain traction number doesn’t necessarily mean you’ll be able to raise money from investors who back companies in the traction category you’re in.  Lots of other things matter, too.

For example, if your growth is stalled, you probably won’t be able to raise from anyone!  On the other hand, if you have an awesome team with a past track record or with pedigree, you may not need any traction at all to raise your next round! If your space is super competitive, you may need to prove out a LOT more traction than what someone else might need to achieve.

Tons and tons of caveats here, but even if this is 50% accurate, I hope it will still give entrepreneurs a sense of what rough numbers to shoot for.  Moreover, I think these rough numbers are important to know because it helps you figure out strategically what your next milestone should be and, working backwards, you can figure out how much capital you’ll need in order to make that happen.