The next question in our series of posts from my Startup America Q&A might just be the best question of the bunch. “How do you know when it’s time to jump from seeking a large angel round to asking for venture capital?”
Wow, the magic question. Though I’m not sure I have the magic answer. This is one that founders have been wrestling with for decades. What makes this more complex is the ever-changing options for financing that are available today that weren’t 5, 10 or 20 years ago.
Let’s go back and look at the ecosystem in the past. VC was really a club industry. Funds were smaller, there were a lot fewer firms and the path to raising capital was pretty clear; self finance, get some angels, friends and family money, and then, when applicable, go right to venture. The angel capital community was small and well known, and the small number of VCs made the process relatively black or white. What changed? The Internet bubble of the 90’s.
All of a sudden, there was a proliferation of angels, newly minted dot.com millionaires who could and did have an active financing strategy. This created a wave of investment capital into companies. VC’s raised ever-larger sums of capital for their funds and corporate VC came back. Still the process was clear, angels first, then VCs after proof of concept. This lasted until the bubble burst. Many of the VCs that were created then are now either not around or have raised substantially smaller funds.
Fast forward to today, we have angel, angel networks, crowdfunding, institutional seed funding, venture of all stripes, growth capital, strategic corporate capital, hedge funds, family offices doing direct deals, and hybrid funds like Cava doing special purpose funding on a deal by deal basis. The point is there are plenty of choices and the lines between with whom and when you fund is blurred.
So the simple answer is, there is no answer. The right question is “who are the right investors for my company?” This is usually a combination of personality, industry, value add, luck and timing. But we could talk about that in a whole other post.
In case you missed the first three posts from Ask the VC: