I get asked this question constantly. “Should I go for angel investment or VC funding?” 

The truth is that there’s no one-size-fits-all. The right choice depends entirely on the type of business you want to build and your growth ambitions.

Let me break down the key differences and help you make the decision that’s right for your B2B SaaS startup.

Understanding the fundamental difference

The key difference between an angel investor and a VC investor is straightforward. An angel investor is normally an individual, whereas a VC is normally a venture capitalist firm. That firm is basically investing other people’s money.

The Angel investment route

The pros of Angel investment

Angel investors are normally way more agile. You can normally speak to an individual, have a quick conversation, and if they like what they see, they make the investment and away you go. 

The beauty of angel investment is that you’re not diluting massive chunks of your equity early on. Angels know they’re investing early, but they’re not normally taking big percentages of your company like a VC would.

Key advantages of angel investment:

• Quick decision-making process
• Smaller checks mean less dilution
• Domain expertise from industry veterans
• More personal, hands-on support
• Perfect for pre-seed and early validation stages

The reality check on Angel funding

Angel investors are normally limited to much smaller investments unless you’re working with high-net-worth individuals. But typically, Angel investors are normally putting in anywhere between £15,000 to £100,000. These are normally early, early pre-seed rounds when you’ve just got a good idea and early traction. These are people taking big risks, but the potential could be a big reward.

The downside? They’re not big rounds. You might need to piece together funding from multiple sources, and once that money runs out and you’ve got three months runway left, you could be in trouble if they don’t have the capital for follow-on rounds.

The VC Route

Why VCs can transform your business

The pros of a VC fund are clear. We’re talking millions, not thousands, but the process takes longer. You’ve got to pitch to lots of VCs, and you’re going to get lots of rejection. These are very experienced investors who know what they’re looking at, and they’re saying no to 99.5% of the things that are put in front of them.

The paperwork is normally a lot more clunky with VC investment, so there’s much bigger due diligence that goes through. But when you do get that funding, it’s like adding fuel to the fire.

The VC expectations game

Here’s what you need to understand, VCs are looking for unicorns. They’re looking for billion-dollar companies. If you don’t want to be the CEO of a billion-dollar company, then VC cash might not be for you, because they’re going to be poking you for aggressive year-on-year growth.

The way VC funding works naturally is that they know they’re investing in 100 companies. The majority of those companies, probably 90%, are probably going to end up dying. They’re relying on a very small percentage that are going to do okay, and they’re counting on one or two that are going to become the unicorns. Those unicorns pay for the whole fund.

What this means for you:

• Expect aggressive growth targets
• Regular investor updates and monthly calls
• Pressure to spend the money quickly to scale
• 25% dilution or more with each funding round
• Seven-day-a-week work commitment

Know what type of business you want to build

This is the crucial question every founder needs to ask themselves. If you want to build a lifestyle business that’s going to do a couple million pounds a year, the angel route could be a good option for you. Sometimes I see founders take VC money, but they don’t want that kind of aggressive growth, and then they get burned.

VCs want you to invest the money immediately. If they give you three million pounds, they don’t want you to have that three million sitting in the bank account doing nothing. They want you to grow the team, make high-risk investments, and scale aggressively. That isn’t for everybody. Not every founder wants to have a big team and deal with that pressure.

When to Consider Each Route: The ARR Milestones

Angel investment sweet spot

Angel investment works brilliantly for those early stages when you’re just proving traction. The really cool thing that exists nowadays in the Angel world is that there are lots of Angel syndicates – a collective of Angels that you can obtain capital from. Everyone puts a cheque in, so you could do an Angel syndicate round for, say, £350K with eight or nine Angel investors contributing to that total.

The VC threshold

In my opinion, VC funding makes sense somewhere between £350K to £500K ARR. Anything before that, and VCs probably won’t be interested. A million ARR is right in the sweet spot – VCs love companies that are at that level because they see it as real validation.

At £1M ARR, you’re normally going to raise on a decent valuation and not have to dilute too much because they can see the traction. They’re not taking as much risk because you’ve already proven some traction with that founder-led sales motion.

Building Relationships Before You Need the Money

Build a network of potential investors before you need the money and keep them updated as you go. If you want to do an Angel round in six months, build a collective of Angels that you think are going to be a great fit for you, and every month send them an investor update showing your traction and growth.

The mistake a lot of people make is starting these conversations when they need the money, and at that point, it’s a little bit too late. You need to warm people up and get them excited before you need the round – this will help you raise at decent valuations and build trust early on.

Due diligence works both ways

When you’re evaluating potential investors, remember that you need to interrogate them just as much as they’re scrutinizing you. Here are the key questions to ask:

Essential Questions for Any Investor

• What are your specific expectations from this investment?
  • You need to really understand what growth plans they’ll be expecting from you as a founder.
• What help can you provide aside from the money?
  • Have they got people they can connect you to? Advisors? Operating partners? Can they help leverage their network?
• What’s your investment thesis?
  • You want to make sure your company fits into the rest of their investment thesis. Ideally, the more niche they can be, the better. If you’re B2B SaaS HealthTech, you want investors who have worked in other B2B SaaS health tech companies.

Do your due diligence on investors the same way they’re doing due diligence on you. Speak to other founders they’ve invested in. What’s the experience been like? How much do they poke their nose in? What’s the investor like to work with?

The Talent Attraction Factor

Many founders don’t consider how your funding choice affects talent attraction. The reality is that candidates love it when companies have VC funding because they see it as good due diligence. VCs don’t invest in rubbish, they speak to lots of companies, they know what good looks like, they’ve done the interrogation on the founder, the product, the market, and the opportunity.

When a company’s had a fresh round of VC investment, there’s normally a couple of years’ worth of runway, so candidates know they’re not joining a company that’s going to run out of cash in six months. The cool thing about VCs is that if you show traction, they’re willing to do follow-on rounds, creating that compounding effect.

Whenever we speak to candidates and tell them a company is VC-backed and we can name-drop the VCs, it always stands out versus companies that have been bootstrapped or taken angel investment because it takes away some of the risk.

Making Your Decision

The bottom line is that you need to make sure you know the type of business you want to build, and that will help you know where to get your money from.

Angel investment might be right for you if:

• You’re in the pre-seed or early validation stage
• You want to maintain more control and equity
• You’re building a profitable, sustainable business
• You value agility and personal relationships with investors
• You’re not ready for the pressure of aggressive scaling

VC investment makes sense when:

• You’ve proven traction (ideally £350K+ ARR)
• You want to scale aggressively and quickly
• You’re comfortable with significant dilution
• You can handle the pressure and reporting requirements
• You’re building for a billion-dollar outcome

Remember, once you take investment from someone, you’re accountable to those people. 

Even angel investors will want to poke their nose in once a month, add value, and almost become a bit of an advisor to you. The key is choosing investors who align with your vision and can genuinely help you build the business you want to create.

The odds are challenging either way, but with the right investor fit and clear expectations, you’ll be much better positioned to build something truly remarkable.