Which is the Better Source for Startup Capital?
Every budding start-up comes across the same big question as its revenue starts to grow, “Is it time to seek funding from a Venture Capital Firm?” The answer may vary depending on the type of company and the economic conditions surrounding the forecasted growth of the startup. One aspect that every entrepreneur must do is evaluate whether they actually need VC funding or if they should go after the likes of an angel investor, private equity investor and maybe even a business incubator. In recent times, crowdfunding has been all the talk. After all, why would a company elect to give up a percentage of their company when they can simply give away their product to “investors”. The only reason why crowdfunding has not taken over the venture capital world is because the JOBS Act has not yet been approved. Crowdfunding and Venture Capital funding have their positives and negatives and they must be assessed before considering accepting an offer.
I have been telling people this since the late 1980s. Now Steve Blank has made it into a flow chart.
Click to embiggen.
Some Great Startup Advice from Sequoia Partners
This is the First Part of a Free Series on Raising Seed Capital from Angel Investors
This series should be of relevance to anyone looking at raising capital down the road whether it be from angel investors or venture capitalists.
However, before we begin the series, allow me to get something off my chest. The label “angel investor” is one of the most misleading names ever given to anyone or anything. It creates significant confusion which then leads to a great deal of wasted time. A lot of first-time capital seekers infer from it that these are people who basically use their savings as grants to fund all manner of loopy or at least half-baked ideas. They also erroneously believe that the main criterion used for giving away this money is the level of the entrepreneurial wannabe’s need. The more the wannabe thinks that he or she needs the money the more obligated the investor is then to cut them a check. Continue reading
How many companies chasing outside capital actually raise any?
To me this is one of the most fascinating questions you can ask about startup financing. The figure I have been hearing regularly over the past 25 years is that venture capitalists invest in about one in ever 500 companies that approach them for funding. It should be added that venture capitalists rarely invest in startups. They prefer later stage companies which have proven themselves in the market place.
The success rate for startups chasing angel investors is even more difficult to dig up. My best estimate is that with credible ventures the odds could be as good as one in 200 to as low as one in 400. I admit that I’m pulling numbers out of the air here but this estimate is also based on 25 years of experience with startups. Continue reading