How are startups raising the seed funding they need to get to the next phase? This is a very simple overview of a few vehicles that help startups raise capital and some new and interesting trends in the ecosystem.
An Angel or Fund can lead a Syndicate on AngelList. Investors that are backing the Syndicate have the option to invest in specific deals that are being syndicating. Syndication allows Investors to pool their resources and share risks.
Ex: FG Angels
Funds on AngelList are “index funds” or “fund of funds” that give Investors broad exposure to lots of deals within a specific vertical. An Investment committee votes on deals that have been syndicated.
Ex: AngelList Consumer Fund
Corporate Investment in Super Angels
Recently, Mailchimp invested $2M into Sig Mosley’s $30M super angel fund. Thriving companies like Mailchimp see this type of investing as a way to diversify cash, help startups and get early access to the most innovative companies in their space.
Many startups choose to go through an Accelerator program. Typically an Accelerator program will take an equity stake in the startup and provide seed capital and a convertible note option, a loan that converts into equity at some point in time.
Ex: Techstars provides $118k for a 7-10% equity stake
Individual Angels are a core part of the ecosystem. Startups will often bring on several Angel investments in combination with going into an Accelerator or using AngelList to assemble the seed capital they need.
Hardware and hard goods startups are using a combination of Angel investing to get the company running with a prototype built and Kickstarter to fund the first product release. Ex: Ubooly
I recommend reading Venture Deals by Brad Feld and Jason Mendelson to get schooled on VC investing.