How to Get Venture Funding, page 10

Angel Funding as an Alternative, continued

If it’s not going to take a great deal of capital to get your business going, consider angel investors not just as a precursor to venture funding but as a substitute. You’re never going to raise $30 million dollars from angels. But, if all your business needs to reach profitability is $2 million dollars (and, in fact, you have no idea what to do with $10 million or $20 million), it’s reasonable to put together a group of angels. A dozen or so angels, each investing from $50,000 to $250,000, should easily fund a $2 million dollar business.

Of course, less investment implies organic—rather than hyper-growth—business strategies. It is not for all start-ups, and not for all situations. It is certainly more appropriate now, post Internet bubble, than it would have been during the boom years when venture capitalists were shoveling out money.

In addition, funding with angels may make it more difficult to get venture funding later. In the words of one entrepreneur, “It’s the pedigree notion. Venture capitalists look down on coming in behind an angel.”

How to Find VCs

The best entry to a VC is to know one, personally or professionally. Failing that, an appropriate introduction is almost essential. For more on this topic, see “Six Degrees of Separation” later in this briefing.

While you’ll want a personal referral or connection, you also need to be able to research VCs. For one thing, you may be able to uncover VC firms interested in investing in your geographic or technologic area. For another, when you go to meet the VC, it’s important to be knowledgeable about the firm. What previous ventures has it funded? What stage investments does it like to make? What areas does it invest in?

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