Demystifying seed, angel and venture capital
I have failed to understand why startup guys and entrepreneur think its pretty easy to raise venture capital, may be they get to read lot of investing news at TC.
Lot of people have approached me asking to help them in raising venture capital and most of those people are working in big MNC software companies. They have a simple idea and would want VC backing in developing their product. Their dreams are shattered when i bluntly tell them it won’t happen, you need to pump in your money during the development.
There is a clear misconception in the market about the funds and type of funds, lets try to make it simple by defining different types of funding -
a) Seed Funding - Seed funding is the very first investment an entrepreneur receives and mostly its raised from family and friends (F&F) and also sometimes referred as FFF - friends, family and fools. Generally seed fund ranges from $10-25k.
F&F is a risky venture for those with the money because the project that they are funding may not be more than just functional specs or drawings, not sure of product can be out in the market.
b) Angel Investors - Angel Investors are individuals who invest their own personal funds in an idea or a company that they feel strongly about. Most of the angels are seasoned entrepreneurs, company executives, HNI’s. Generally the fund angle investors lend is in the range of $100-$500k.
c) Venture Capital - In simple words they are biggest money lenders for startups and growth stage companies. Venture Capitalists are generally small teams of investors with sufficient backgrounds in the fields in which they are investing. New ventures will seek to raise funds in rounds of funding called “series.” Often times when researching companies you will see that Company X received $4M in Series A funding and $5M in Series B funding. Generally, the more series of investments, the more promise VCs, Angels or other investors see in the company. Generally they invest above $1M.
-Hitesh, vcBytes.com
