Entrepreneurs are beginning to face a new structure for potential equity financing. The traditional roles of venture capitalists and angels are evolving, and entrepreneurs need to understand who is best to approach for their funding and what these potential investors now have as objectives for their investments.
The average size of a venture capital investment is now well over million. VC?s have become even more selective than ever before, preferring deals that have a clear path to an IPO. They have also become more specialized by industry and geographic markets. They are looking for more later-stage investments with known and market-proven entrepreneurs.
An even more significant change is underway in the angel investor realm. Whereas angels used to be highly independent, some angels are now forming investment groups. This has basically created two distinct types of angel investors: “organized” and “informal”. Even more interesting is the formation of associations of angel investment groups. ?Organized angels? are beginning to fill the investment role that venture capitalists performed in the economy just a few years ago. They are funding early-stage companies with higher risk, and often doing so in groups to spread out their risk. In groups, they are also able to fund much larger deals than typcially seen in the past.
?Informal angels? still exist and play a vital role in our entrepreneurial economy. They do smaller deals, and invest through social and business networks. There is still angel investment money available for the smaller deal, but many entrepreneurs err by assuming that they should look to these newer ?organized angels? for such investments.
Equity investors now exist in these three categories rather than the two that most of us have been familiar with in the past.