Angel investors are different than the typical VC investor. While an Angel may have a personal interest in the company, the founders, or the product that drives the investment, VCs invest almost solely based on the ROI (Return on Investment) they expect to receive. The disparate interests of these investors can be traced to a key difference in the investment they make. Angels typically invest their own money, while VCs are responsible for investing the money of others. In legal terms, VCs have fiduciary duties to the persons or entities whose money they invest. When investing their own money, Angels owe no duties to others with respect to the monetary investment. Not having fiduciary duties to others allows Angels to look at ROI as a factor of the investment, rather than the principal determinant of the investment (and may also make for easier due diligence and less “papered up” transactions).
In a subsequent post, we will look at some of the determining factors Angels and VCs look to when deciding whether to invest in a startup.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.