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The rise and role of the Micro VC
Seed Investor, Streamlined Ventures, Very Early Specialist
Angels invest from their own personal balance sheets.
Micro VCs raise money from institutional investors and engage at the seed stage.
Angels are looking for the right entrepreneurs; VCs are looking for market opportunity and ROI.
Lesson: Picking Winners with Ullas Naik
Step #8 Angels & VCs: The rise and role of the Micro VC
Angels are people investing out of their own personal balance sheets. So these could be successful tech entrepreneurs, successful tech executives, doctors, lawyers, mom and pop; they're all angels. If they have capital to be able to deploy and they're deploying into companies, then they're angel investors.
Institutional micro VCs are folks like myself who raise money from institutional investors in order to invest at the seed stage. Now, our criteria are very different from angels. Angels will often invest in a person or an entrepreneur or a set of entrepreneurs in a general market opportunity. Sophisticated angels have more sophisticated criteria, but the average angel is investing because they believe in that entrepreneur and they think that the entrepreneur can make them money.
Institutional investors are coming at it from a slightly more sophisticated point of view in the sense that they're looking at market opportunity. They're highly immersed in those market segments. So they're looking at market opportunity. The opportunity for that investment to generate 10X, ideally shooting for more than that, but ideally, 10X of the investment.
As an angel, I've invested in over 70 companies. As a micro VC, I've invested in now 12 companies. As an institutional VC, my friend and I, at the time, invested in over 150 companies. So they're all different.
As an angel, I have a lot more flexibility. Because I'm investing my own money, I'm not answerable to anybody else. If I lose the money, it's my own money. If I make money, it's my own money, which means it's a much lower stress style of investing. But at the end of the day, it's my own money. So if I'm losing it, it's mine.
As a micro VC or as an institutional investor, an institutional venture capital investor, I'm investing somebody else's money. Which brings in a whole different kind of pressure, because now, I have to watch other people's money which is a very important thing. It's a big responsibility. So you have to be very cognizant of that which means that you cannot take risk as willy-nilly as you could perhaps when you're an angel.
As an angel, I can roll the dice on something that feels right, instinctively, intuitively. As an institutional investor, it has to feel right instinctively and intuitively. But I also have to have a process, a methodology for evaluation of that opportunity. Then I have to be very actively involved in making sure that the outcomes get to where it needs to get to so I can return money for my institutional investors. So it's more pressure as an institutional investor, less pressure as an angel.
Often as an institutional investor, whether you're a micro VC or a large VC, there's a band of partners that are involved in managing that money. The interaction between those partners, the dynamics between those partners are critical. If they're friendly and collegial, it's better. Often, that's not the case on account that it creates a whole different level of stress.
People often say that being a venture capitalist is a cushy job. It's actually a pretty hard job. It involves an enormous amount of politics, fundraising stress, deployment stress of capital and then if you fail, there's a lot of judgment that comes with that, too. It's a tough job on the institutional side. Being an angel investor, much easier. But then, you're off solo by yourself making one-off bets.