The A-B-VCs Of Startup Funding: Who Has The Money And How Do You Get It?
Navigating the funding landscape for startups can be a confusing, scary mess of angels, crowds and capitalists. But, this is a terrain you need to know everything about so you can make your startup funding a smooth journey. Let’s start by learning the A-B-VCs.
Such a lovely name for the wealthy individuals that believe in your startup so much they are willing to invest their personal money in it (in exchange for convertible debt or equity, of course). They truly can turn out to be your startup angels.
In 2010, there were 250,000 Angel investors in the United States that invested over $20 billion startups. These investments are usually very early and high risk. So why do they do it?
Angels tend to be former entrepreneurs themselves and have a soft spot for the budding business owners of the world.
Other reasons include:
- Return on investment
- Staying involved with the startup community
- A personal connection
- Giving back to the community
But the booming startup market is seeing Angels raise their bar, and investments from our dear heavenly friends are becoming more challenging. This has everything to do with a changing landscape and higher quality entrepreneurs. Check out Glen Hellman’s (ironic name) breakdown of the new Angel investment norm.
Bootstrap and Banks
Ok, so you can’t manage to scrape up money from your friends and family, and there are no Angels in your sky, on your shoulder or in the outfield. Now what?
It’s time to take matters into your own hands and fund it yourself. Bootstrap style. This is scary, of course, but there are many, many creative, resourceful and successful ways of bootstrapping that won’t break the bank. Check out bootstrap advice from Jesse Pujji of Ampush Social, and here for bootstrap marketing tips.
And then, of course, there’s always the big, bad bank loan. We know how difficult and stressful this type of funding can be, but there are definitely ways of obtaining small business loans.
This is the new hot trend that, after the passing of the JOBS Act in April, is spreading like wildfire across the startup funding landscape.
Startups are now able to gather funding from the generosity of individuals who truly believe in them via crowdfunding sites like kickstarter and crowdtilt. And, this is no $5 donation bucket. Startups have raised well over a $1 million using crowdfunding, smashing their original funding goals. So what’s in it for the investors? Crowdfunded projects usually promise something exclusively for donators anywhere from behind the scenes videos, to gifts.
Ok, these are the big dogs that startups dream of impressing. There are many types of VC funds, but essentially they are a group of professionals that invest large sums in startups in exchange for equity. Unlike Angels, VCs typically invest in startups further along in their development that have built traction. Aziz Gilani, director of DFJ Mercury, breaks down the VC basics here.
So whether you have a guardian Angel, a pit bull VC or just your little old self, there are a variety of ways that entrepreneurs can find funding and success in the startup funding jungle.