We all know that raising money for a technology startup is difficult. According to Fundera, only 0.05% of all startups raise venture capital. Fortunately, there have been a continued rising trend in new vehicles for fundraising and new pools of capital ready to be put to work for you and your startup business. These three new vehicles come in the shape of: Angel Led Rolling Funds, University Led Angel Funds, and Venture Studios.
Background - Definition of Risk: Entrepreneur versus Venture Capital:
Traditional Venture Capital is meant to invest while there is still a significant amount of risk in the new and growing business, hence the word “venture” in the name. However, especially in markets outside of Silicon Valley, the industry’s definition of risk might look a lot different than what we consider risk as entrepreneurs. The VC industry likes to see revenue, revenue growth, a solid core team, demonstrable IP or technology, successful customer acquisition metrics, product market fit, and more. Or, you might be earlier than this BUT you have already had a 7+ figure exit under your belt.
From the entrepreneur's perspective, having some combination of the above equates to having a full proper business. At that point, is it still a venture risk or is it a growth equity risk level? As entrepreneurs, we have to solve for the much risker stages of a new business which are at the very beginning. Having the aha moment, turning that into a problem statement, validating that with a potential audience, scraping together enough resources to show a demo, then a prototype, get some customer LOI’s, convince others to join your team for sweat equity, etc… These are the times, in the minds of entrepreneurs, where there is real risk. Once we are selling a product to a customer and have staff, we’re basically a mature business, or at least we think we are :)
So the question is - how do startups make it to the stage at which they are ready to raise Venture Capital?
Currently, that comes in the form of a few models:
The "traditional" options don't always work for us entrepreneurs, which is why we are happy to see three growing trends in 2022 for fundraising:
Venture Studio
Venture Studios have been popping up for the last few years, as a way to de risk early stage startups by surrounding the entrepreneur and/or the idea with proven resources, ranging from built in developer and engineering staff, to sales and marketing experts, to assistance with formation and fundraising. This is a LARGE component of both the risk as well as the cost in the very early stage. This is an option worth considering if the studio is accepting outside entrepreneurs into their program.
Pros
Cons-
Read here for Venture Studios, what they are, and where they can be found in the Southeast (United States).
Don’t forget about our own venture studio.
Angel Led Rolling Fund
Rolling Funds were introduced by (or at least made popular by) Angel List in 2020 and are really beginning to pick up steam. Typically with more capital than an individual angel, along with more flexibility than a VC, and with the added bonus of many active LP’s, rolling funds represent a great opportunity for entrepreneurs to raise capital in 2022.
How Are Rolling Funds Different than Syndicates?
Pros:
Cons:
Read here for more on Rolling Funds, and why I like the Tweener Fund.
University Led Angel Funds
Now, you can be an angel investor as well as help your alma mater in one fell swoop! WIth the rise in the tech and entrepreneurship space, and the wealth that has been generated from it, there is no surprise that universities have caught on and are making their own moves. Enter the University led Angel Fund.
Pros
Cons
Read here for our blog post on university led angel funds
That about sums it up. Raising money in your startup is difficult. Fortunately, there are more options than ever before.
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We all know that raising money for a technology startup is difficult. According to Fundera, only 0.05% of all startups raise venture capital. Fortunately, there have been a continued rising trend in new vehicles for fundraising and new pools of capital ready to be put to work for you and your startup business. These three new vehicles come in the shape of: Angel Led Rolling Funds, University Led Angel Funds, and Venture Studios.
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