One of the most interesting discussions at TechCrunch’s Disrupt conference was the debate between the “super angels” and VCs. No, I’m not referring to “AngelGate” or the question of which investor group squeezes entrepreneurs the most. Despite what they say, all investors are in the game for personal financial gain; it’s not about nurturing entrepreneurs or doing good for the world. The most interesting discussion—for entrepreneurs—was about whether a startup should raise lots of venture capital and go for the billion-dollar exit, or raise less money and be happy with a few million.

This issue is much more important than it seems: it affects the way you grow your company, and the focus you place on products and customers. When you go for the billion-dollar exit, you have to start with a master plan for owning a significant slice of a multi-billion-dollar market. You need to develop grand products for grand markets. This is good—you need a vision and a long-term focus. The problems begin when you start raising capital and racing to grow at all costs. And that is where the real chasm between the “super angels” and VCs is developing.

At the TechCruch event, “super angel” Dave McClure argued that there was nothing wrong with the $50 million exit. “It’s not a bad thing to be building a small mousetrap”, he said. McClure told me, after the panel, that he believes that raising too much money can be harmful to a startup—it leads to bad habits and increases the chance of failure. In the race to build billion-dollar businesses, companies lose sight of their customers and crash more readily, after burning through large amounts of capital. By aiming for smaller markets, startups can have a greater customer focus and build better products. And they can differentiate themselves from competitors going after bigger markets.

McClure is right. When you raise small amounts of money, expectations are small, and you have to bootstrap your way to success. You have to focus on building products very fast, validating that your customers really need them; and on bringing in revenue. The $50,000 to $250,000 that you raise through angel capital doesn’t go very far. You are largely on your own.

When instead you have millions in the bank after raising venture capital, you have the luxury of building products that are more strategic. You don’t need to ask customers what they need; you can let your gut guide you. This is great if your instincts are correct—you might build a Twitter or FaceBook. But entrepreneurs are almost always wrong. They really don’t understand their customers; they learn by trial and error. And what happens in the venture industry is that when one big-name VC funds one particular type of company, every other VC jumps on the same boat; it becomes a mad race to gain market share. Witness what is happening in the location-based services market with Foursqare and Gowalla—with all the new competitors. And with all the Groupon clones. Only a handful of the hundreds of companies that are receiving funding will survive. Maybe one—and this is a big maybe—will become a sustainable billion-dollar business.

Then there is the issue of the exit. If you’re a founder and own 50% of your startup, a $30 million acquisition can be life-changing. With a $15 million payout, you go from poverty to riches. You’re set for life: you can afford to send the kids to the best schools, buy a multi-million dollar house on the hills, live a great lifestyle, and personally fund your next startup (or you can become a “super angel”). The difference to you between $15 million and $150 million (if you go for the billion-dollar exit) is small—the extra millions really won’t change your world that much more. But for VCs, these small exits don’t make sense: because of the big funds they manage and the limited numbers of companies VCs can involve themselves with, they need to make big investments to get big returns. A modest 2x return is of no interest to them. That is why they often block acquisition offers of less than $100 million. VCs see the acquisition offer as an endorsement of the company’s products and usually want to invest even more so they can go for the billion-dollar exit. This usually puts them at odds with the company founders. (There are shades of gray here: VCs can always buy part of the stock that founders own, but all else is the same. And VCs often force companies to replace company founders with “more seasoned management” as the companies grow.)

As well, the lower the price, the higher the number of potential acquirers. There are hundreds, if not thousands, of companies that can do a $50M deal and only a few that can spend $500M on an acquisition.

There are also alternatives to early exits, as I wrote about in this piece: Is Entrepreneurship Just About the Exit? Most entrepreneurs are happy to build a lifestyle business that pays the bills and lets them learn; grow; and “enjoy” the entrepreneurial journey. Angel investors may well endorse this strategy if they can see the steady, long-term returns.

So my advice to entrepreneurs is to always think big and dream of changing the world—but be pragmatic and live within your means. You are more likely to succeed—and possibly to build a billion dollar business—if you stay focused on your customers and grow at a sustainable pace. And if you’re lucky enough to get a life-changing acquisition offer like Mike Arrington just did, follow his example. Go for the billion dollars when you start your next company—by then you’ll have more experience and you won’t be risking the kids’ college education.

Editor’s note: Guest writer Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. You can follow him on Twitter at @vwadhwa and find his research at www.wadhwa.com.