Why do VC’s or Angel Investors insist on large fundings…greater than $100,000

The typical angel deal is about $500,000, but angels often co-invest via an angel network, so each individual angel might only invest 10% of the total deal. It’s not unusual to find transactions where there is only a single angel investor who invests less than $100,000. VC firms, on the other hand, typically don’t invest less than a few million dollars in a single company. That’s because VC funds are structured as limited life entities, where the fund manager gets a fixed percentage (usually around 2%) of funds under management as a management fee, plus a percentage of profits. Since the entity has a limited life, typically around 10 years, the funds have to be deployed and liquidated in a finite amount of time, so there are only a certain number of deals that can be done. Since you can only do a finite number of deals, the larger the fund size, the larger the size per deal. Also, since fund managers get a 2% annual management fee, they have an incentive to manage larger funds –a small fund results in a lower salary for the fund manager.

Although a VC that manages a $100 million fund might want to do about 20 deals where he or she can deploy about $5 million, there may be some flexibility around this. For example, if you say to the VC that you ultimately need $5 million, but would like to take it in stages (starting with $100,000), they may be more receptive.

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2 Responses to “Why do VC’s or Angel Investors insist on large fundings…greater than $100,000”

  1. George Siyanga says:

    I am looking for seed capital in the range between US $350,000 to US $500,000 to invest in an agro-based company dealing in farm implements, agro-chemicals, solar, seed and pumps. The business opportunity is very good, government has removed or lessened duty in the sector. Most of rural farmers come to town buy these products. I want to be nearer these customers.

  2. PERUMAL SELVARAJ says:

    DEAR SIR,

    GOOD PRODUCT. INVESTOR INTEREST MEET DIRECT.

    PROJECT REPORT READY FOR DISCUSSION

    REGARDS

    P.SELVARAJ

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