Thread by @dunkhippo33

Today's tweet thread is about the differences between angel investing & running a VC fund.

A lot of ppl think they like angel investing but wish they had a lot more $$ to invest. So the natural thought is "I should run a fund!"

However, they are very different.

More here >>

1) First, it's impt to say that one isn't better than the other. I often hear ppl say on Twitter that angel investing >> VC investing. Or vice versa.

They're just way different.

2) Here are the top pros and cons IMO on both:

Angel investing:
Pro: Freedom! You can invest however you want.
Con: No accountability

VC:
Pro: Have a lot more capital than your own to work with
Con: Lots of operational work -- the focus isn't investing per se - gasp! 🤔

3) What it's like as an angel:

You see a company. You like it (the founder / the problem / the product / whatever). You invest!

It's simple. You can decide however you want. It's your money.

4) There is very little administration:

As an angel, thing I've never done:
-asked for the company's incorporation docs
-calculated to the T my position's worth
-reviewed conversion docs from SAFEs to equity -- I just assume they are right

5) In part, it's because I have no time, no resources to pay ppl to do this, and also no one to answer to on any of these things.

This is why raising from angels is quick and easy. They literally don't look at *anything*. Because they don't need to.

6) As an angel, there are also many reasons to invest besides ROI. This is why you see angels do the bulk of investing in things like food or socially good products.

They think about what they want the world to be not what will necessarily make them the most money.

7) In contrast, VCs are stewards of other people's money. You're looking for what you think will yield the highest ROI.

You also need to track documents and your positions carefully for your LPs. And send monthly or quarterly updates!

8) Tactically speaking, this means chasing down cap tables. And new company charters. And incorporation docs to make sure you're investing in a real company.

9) And yes, you can hire teams to help you, but ultimately, VCs have the relationships w/ the founders, so you are asking your founders for all kinds of things every financial round even if you are not participating.

10) In addition, you work more closely with your portfolio to stay abreast of what is happening so you can report back to your LPs.

11) The big thing I didn't mention is that as a VC you also spend a lot of time fundraising. Esp if you have a first fund and you are a new fund.

A lot of ppl think that if you have a great angel track record that will make the fundraise easy. And in some cases yes.

12) But in most cases no. I know so many seasoned ppl who were successful angels who struggled to raise their first fund.

Just like w/ every new startup, there is always pushback about whether you can repeat your success with a new brand/company. Or whatnot.

13) For our Fund 1, we took over 700+ meetings w potential LPs. That is a LOT. That's not something you do as an angel.

So actually, you can spend a lot of time on investing as an angel than as a VC for all of the reasons above.

14) The stakes are also higher as a fund mgr. Because you are taking mgmt fees and carry. What your LPs make will be less than what you would make as angel, because you are eating into the profits with fees and carry. That's something a lot of ppl don't consider.

15) So as you can see, with all this work, despite the stereotype, emerging fund mgrs actually work REALLY HARD. Because they have to.

They have to hustle to raise their fund. And do fund ops. And consistently deploy capital in great companies.

16) Lastly, it's a 10+ yr commitment to be a VC. This is why when you see partners leave a firm, they commit to continuing to support the companies they picked for the next several yrs.

But, you can pause as an angel.

17) So if you're deciding whether to continue as an angel or spin up a VC fund, I think it's impt to consider all these things. I know a ton of ppl who went into VC and didn't like it for the reasons described.

18) If the problem you really want to solve for is just having more $ to deploy into companies, you can do that as angel without being a VC.

Building a syndicate to invest alongside you is a good way to do this.

19) Your co-investors don't really expect much/any reporting. And you don't need to spin up fund operations.

20) If you're starting with an Angellist rolling fund now and get other angels as your backers, that's probably a happy-medium between a VC fund and an angel syndicate.

It's a fund. But you don't have as much of the reporting requirements / paperwork that a traditional LP wants

21) I actually think that's a great way to test the waters on a fund to see if you like it. And after a yr, you don't have to continue the commitment if you don't.

22) The great thing about today is there are lots of places to play in the spectrum of angels<->VCs and all have their pros and cons.

But I would definitely do your homework first on all your options.