Growth Stage – Startup Funding Life Cycle

The growth stage of a new business or venture generally begins late in the “Early Stage” and proceeds well into the stages requiring mezzanine / VC financing.  Late in the early stage, aspects of the company begin to become more complete and there is clear evidence of progress in the company’s development.  Typically, the management team is more complete and the product or service has gone to market on a commercialized basis.  Enough revenues are being generated such that the company is beginning to obtain market validation for their product.  Patents filed for proprietary technology have been or are close to being issued and their product and websites are offered on a commercial basis.

It is late in the early stage that this growth stage begins and the entrepreneurs typically seek larger higher funding from angels groups and VCs. These growth stage companies are typically only two to four years old.

Angels are affluent individuals who provide investment and intellectual capital to entrepreneurial startups.  These resources are typically provided to the startup in exchange for convertible debt and / or equity in the startup.  In recent years, these investors began organizing into groups for the purpose of sharing the efforts related to identifying and assessing potential opportunities and pooling their investments.  Information, resources and tools, related to investment by angel groups follows:

Background Information

Originating from the theatre industry, the term “angel” originally described wealth benefactors who provided funding for theatrical productions.  Today it applies to high net worth individuals, (accredited investors under the definitions of such by the SEC) who provide seed capital for scalable, high growth companies.   The Angel Capital Association and the Angel Fund, the major industry associations in the United States both promote membership rosters which exceed 200 groups.  We, (the Sages) have been able to identify and validate more than 300 angel investment groups in the United States.

There are two types of angel groups, angel networks and angel funds.  Angel groups whose members participate actively in the identification, screening and vetting of the investment opportunities, who make their own investment decisions for each investment opportunity, and who invest as a group through a shared investment vehicle, are generally described as angel networks.  When the members of the group invest based on established criteria and guidelines and primarily utilize the support of third parties to identify, screen and complete the due diligence on the opportunity, they are generally identified as a fund.  Under the fund structure, members commit capital and invest in all opportunities identified as appropriate based on the criteria established for the fund.

Angel investment carries with it a high degree of risk.  As a result, angel investors usually seek returns of 10X within five years as most early stage investments fail, resulting in the angel losing their entire investment.  These issues cause the angel investor to focus on developing a highly diversified portfolio, thereby reducing the risk of the overall investment.  Analyses over time, from numerous sources has revealed the typical stable angel group with a diversified portfolio returns at a rate in the mid to upper teens to the low to mid twenties on a percentage rate basis.

The statistics concerning angel groups and investment vary widely.  Groups may have as few as 10 members or as many as 150.  Some syndicate, some don’t.  Some invest locally, regionally and nationally, even internationally.  Others invest only locally.  Different groups invest in different industries and at differing levels.  Smaller and newer groups may provide investments from $50K to $250K while large established groups may invest up to $1.5M or more.   It is therefore extremely important that the entrepreneur understand the angel groups structure, approach and criteria thoroughly.  Otherwise, pursuing an investment from any given angel groups may be little more than a shot in the dark, wasting the entrepreneurs’ time and resources, something they have in extremely limited quantities.

Resources

Angel Capital Association: The Angel Capital Association, (ACA) is a “leading professional and trade association supporting the success of angel investors in high-growth, early-stage ventures.”  With a membership of more than 200 angel groups and 12,000 angels / accredited investors, the ACA is a provider of professional development, industry representation, public policy advocacy and an array of benefits and resources to its membership.

ACA indicates its mission is “to fuel the success of angel groups and private investors that invest in high growth, early-stage ventures.”

Angel Pool: AngelPool is one of the largest organization of angels and accelerators in the world. They have a membership of Over 200 angel groups including 5,000 angels which share knowledge, deals, best practices and learnings with each other. They are comprised of over 500 volunteer leaders who graciously volunteer their time on our various boards, judging and mentoring. Their mission is to help angels, groups, accelerators and funds profitably find and invest in the best tech disruptors and founders globally to drive jobs, innovation and growth.

Alliance of Texas Angel Networks: The Alliance of Texas Angel Networks, (ATAN) is a non-profit organization established to facilitate cooperation between the angel investor groups in Texas.  Over the last several years, these groups have worked together and shared investment opportunities and “know how”.

Appalachian Regional Commission: The Appalachian Regional Commission, (ARC) supports various activities in order to promote entrepreneurship and business development in the Appalachian Region. Their objective is to help diversify the region’s economic base and enhance entrepreneurial activity by developing and marketing strategic assets, increasing the competitiveness of existing regional businesses, and fostering the development and use of innovative technologies.

Angel Association New Zealand: The Angel Association New Zealand was established in 2008 to facilitate the efforts of business angel networks and early stage funds to work towards an agreed national vision. The Association desires to increase the quantity, quality and success rate of entrepreneurial investments in New Zealand facilitating the strengthening of the New Zealand entrepreneurial ecosystem.

The primary objectives of the association are to:

  • Promote the growth of angel investment by encouraging and educating entrepreneurs, new angel investors and angel groups.
  • Ensure the ongoing industry success by developing an industry strategy, providing education and encouraging collaboration between its members.

Angel Resource Institute: The Angel Resource Institute, (ARI) is a non-profit organization focused on providing information on best practices and educational information related to the field of angel investing.  ARI’s programs include educational workshops and seminars, research projects and reports, and information about angel investing for the general public. Their programs are available to those interested in early-stage capital including investors, entrepreneurs, policy makers, entrepreneurial support professionals, and many others.

Australian Association of Angel Investors: The Australian Association of Angel Investors, (AAAI) is a not for profit company which serves as the national voice of the early stage investment community. Their objective is to provide a platform for the growth of the early stage investment capabilities of Australia.  They provide information and resources, a platform for collaboration and internationally recognized professional development programs to the countries angel investors and entrepreneurs.  AAAI also advocates on behalf of the participants in the entrepreneurial ecosystem to shape policy and uphold professional standards.

Business Angels Europe: Business Angels Europe, (BAE) is the European Confederation of Angel Investing.  It represents the European Business Angels’ Federations and Trade associations. Its objective is to bring together the most active and developed countries operating in the angel markets in Europe and serve as the voice of angel investing on the continent.

Council for Economic Development: Membership of the CED includes a wide range of startup companies, maturing entrepreneurial companies, corporate partners, investors, academics, service providers, and individuals interested in entrepreneurship.  The organization, located in the North Carolina Research Triangle provides education, mentoring and capital formation resources to new and existing high-growth entrepreneurs.

European Business Angel Network: European Business Angel Network, (EBAN) fuels innovation and growth throughout EMEA. Representing the early stage investor community, EBAN membership includes over 145 member organizations from 46 countries throughout Europe, the Middle East and Africa. Their members include angel networks, early stage venture capital and seed funds, electronic funding platforms, individual angels, crowdfunding platforms and accelerators.

Launch Tennessee: Launch Tennessee, (LaunchTN) is a public-private partnership focused on supporting the development of high-growth companies in Tennessee. Their objective is to make Tennessee the No. 1 place in the Southeast to start and grow a business.  LaunchTN is funded in part under an agreement with the State of Tennessee.

National Angel Capital Association: National Angel Capital Association , (ACO) was established as a non-profit in 2002 to promote and support the creation of a vibrant Angel community in Canada.  The ACO provides Angel investors with a secure environment to network and collaborate.

ACO has more than 2,000 members across Canada.   Their members are a diverse group of individual investors, Angel groups and other industry partners that provide support to early-stage companies.

Pipeline Fellowship: Pipeline Fellowship is an angel investing bootcamp for women which works to increase the diversity in the U.S. angel investing community and create capital for female social entrepreneurs. Launched in NYC in April of 2011, the Pipeline Fellowship has expanded from NYC to Atlanta, Austin, Boston, Chicago, Los Angeles, Miami, San Francisco, Seattle, and Washington, D.C..

Wisconsin Angel Network: The Wisconsin Angel Network (WAN) fuels the growth of capital in Wisconsin by operating as an umbrella organization providing services and resources to the early stage investing and entrepreneurial communities. It is part of the Wisconsin Technology Council’s overall economic development and job creation efforts. WAN is a Wisconsin public-private initiative operated by the Technology Council.

Tools

Angel Options, a TurboFunderSM Tool enables the user to search our database of more than 300 angel groups in North America to find those groups which offer capabilities and have established investment criteria which best aligns you’re your company’s needs.

Entrepreneurs spend far too much time researching options and far too little time with the decisions related to building and growing their companies.  Researching several hundred angel investment options to find the best fit with your company is time consuming and an inefficient use of the entrepreneur’s time, especially when tools and algorithms exist to eliminate these inefficiencies,   The Angel Options Tool developed by the Sages permits you to utilize our processes resulting in a substantial reduction in your research time.  Freed from the detailed research effort, you, the entrepreneur are able to expend greater time and a higher level of focus on issues directly related to your company’s development.

Try the Angel Options TurboFunderSM Tool

The process of raising funds by obtaining small amounts of money from large groups of people, through the internet is known as crowdfunding.  Following are information, resources and tools, related to this financing methodology.

Background Information

Crowdfunding is a process of raising funds for an opportunity by obtaining small amounts of money from large groups of people, generally through internet sites designed specifically for this purpose.   The internet facilitates crowdfunding through fundraising platforms, which, when leveraged with social media websites such as Facebook, Twitter and Linked-in are able to rapidly and efficiently attract vast numbers of potential investors resulting in successful fundraising campaigns for opportunities ranging from personal projects and social support to entrepreneurial ventures.  Crowdfunding, a recent phenomenon, has the potential to radically change the fundraising processes for individuals, non-profits and for profit entrepreneurial endeavors.

Crowdfunding can be utilized to obtain “Money for Goods”.  Under this funding model donations are solicited for creative personal projects, social welfare projects / non-profits, scientific and research and to a lesser extent, “for-profit” projects.  Monies obtained under this approach are generally categorized under one of the following three funding models:

  1. All or Nothing (AON) – Fund-raising pledges are pursued with a pre-determined minimum. If the minimum is not met, no money is collected.
  2. Keep it All (KIA) – Fund-raising is pursued without a pre-determined minimum. All of the funds collected (less commission) are provided to the entrepreneur. Even if the entrepreneur has insufficient funds to meet the objectives, he / she has the discretion as to whether or not to refund the funds.
  3. Bounty – Funds are raised for the purpose of creating of a product or providing a solution to a particular problem (i.e.; a software bug). Funds are awarded when someone successfully provides the requested service.

Crowdfunding can also be utilized for raising equity or borrowing money for entrepreneurial opportunities / business ventures.  Under this model, crowdfunding platforms and social media websites are leveraged to expand the potential investor base providing significantly higher numbers of potential investors for entrepreneurial opportunities.  Currently, in the United States, the options here are somewhat limited as the processes generally continue to require “Accredited Investor” status and transparency.  However, the regulators are reviewing current regulations based on the “Jobs Act” and some liberalization my result in expanding the pool of investors to include non-Accredited Investors use of the crowdfunding platforms and capabilities.  The environment is dynamic and interested parties in all countries should monitor the environment on a continuing basis for change.

As described above, crowdfunding for equity and debt can be further defined as follows:

  1. Debt crowdfunding – The start-up borrows money which must be repaid, usually with interest.
  2. Equity crowdfunding – Equity is provided to investors for funds invested in start-ups raising funds.
  3. Property crowdfunding – Owners raising funds provide investors an interest in the underlying property.
  4. Other crowdfunding – Various structures generally unique to particular services, (i.e.; perqs, publication, or rewards).

Resources

Crowdfunding Professional Association: The Crowdfunding Professional Association (CfPA) is a 501 (c)(6) nonprofit trade organization that was established following  the signing of the Jumpstart Our Business Startup Act (“JOBS Act”) in April of 2012. The association is dedicated to representing the Crowdfunding industry, engaging the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and providing the industry with education, a professional network and tools that will accelerate capital formation and ensure investor protection.

JOBS Act: The Full Text of the America JOBS Act posted on the White House website.

SEC Press Release (SEC Issues Proposal on Crowdfunding): The Securities and Exchange Commission, (SEC) press release related to the commissions proposed rules on crowdfunding.

Proposed SEC Rule on Crowdfunding: The Securities and Exchange Commission, (SEC) proposed rules on crowdfunding.

Tools

Crowdfunder Options, a Turbo-funderSM Tool enables the user to search our database of more than 150 crowdfunding platforms to find those platforms which have capabilities closest to their needs.

Entrepreneurs spend far too much time researching options and far too little time with the decisions related to building and growing their companies.    The Crowdfunding Options Tool developed by the Sages permits you to utilize our processes resulting in a substantial reduction in your research time.  Freed from the drudgery of research, you, the entrepreneur are able to expend greater time and a higher level of focus on issues directly related to your company’s development.

Try the Crowdfunder Options TurbofunderSM Tool

Venture Capital is a type of private equity capital in which seed, early stage, growth, (Series A) and mezzanine, (Expansion) funding is provided to ventures to support their growth, development and expansion, in exchange for equity.  While earlier round financing is less common and convertible debt may also be utilized, preferred equity which provides certain investor’s rights is the typical investment instrument in the later, Series A rounds, which are much more common to the VC.  The objective of the VC is to generate a return through the realization of a future liquidation event, such as a sale to a strategic player or an IPO.  Venture capital firms source their funds for investment from high net worth individuals through funds which are professionally managed, and invest the funds on behalf of these individuals in return for an annual management fee and carried interest on the profits of the fund.

Background Information

An individual who provides financial capital for venture investment as well as managerial and / or technical expertise is generally referred to as a venture capitalist.  These resources are usually invested through a “pooled investment vehicle”, such as an LLC or LP, (Fund), and invest primarily in highly risky but scalable seed, early and growth stage ventures which have difficulty obtaining funds from the capital markets or banks.  These funds are typically professionally managed by venture capital firms which may also employ managerial and technical experts with deep business and industry experience.

There are two primary types of venture capital providers.  The first is the venture capital firm which is generally recognized by the public for providing financial capital or resources focused primarily for the objective of a financial return for its investors.  Corporate venture capital is funds from existing corporations which invest their monies and expertise directly into startups external to the corporation, for both strategic and financial purposes.   Corporate venture capital is a significant subset of the venture capital industry.

The objectives of venture capital firms vary significantly as do their approaches.  As noted above some may invest with financial goals in mind while others invest for strategic purposes.  A recent phenom is the creation of firms with a societal focus.   Venture capital firms may focus on startup companies in different stages of development or from different industries.  Some may operate locally only while others operate regionally, nationally or globally.  Some may invest only in disruptive concepts while others invest in existing established companies which simply need support to grow.   They invest in differing business models with differing growth curves, trajectories and capital intensity.  It is therefore very important that the entrepreneur fully understand the objectives and approach of the venture capital firm in order to utilize their time and resources as efficiently as possible.

Resources

African Venture Capital AssociationAfrican Venture Capital Association, (AVCANET) is an industry body which operates across Africa to promote and enable private equity on the continent.

Australian Private Equity & Venture Capital Association LTD: Australian Private Equity & Venture Capital Association LTD, (AVCAL) is an Australian association representing the private equity and venture capital industries in the country.

Canadian Venture Capital & Private Equity Association: Canadian Venture Capital & Private Equity Association, (CVCA) promotes the venture capital and private equity industries in Canada.

Digital Venture Capital Association: Digital Venture Capital Association, (DigitalVCA) is a non-profit which represents the venture capital and private equity industries globally with the objective of growing the digital and high growth technology sectors for the benefit of society.

European Venture Capital Association: European Venture Capital Association, (EVCA) seeks to shape the future direction of the European private equity and venture capital industries while promoting it to its stakeholders.

Hong Kong Venture Capital and Private Equity Association: Hong Kong Venture Capital and Private Equity Association, (HKVCA) was established in 1987 to promote and protect the interests of the venture capital industry in Hong Kong.

Indian Private Equity & Venture Capital Association: Indian Private Equity & Venture Capital Association, (IVCA) established in 1993 seeks to promote the development of the venture capital and private equity industry and to support entrepreneurial activity and innovation in India.

Latin American Venture Capital Association: Latin American Venture Capital Association, (LAVCA) is a non-profit association which is supports the growth of the private equity and venture capital industries in Latin America.

National Venture Capital Association, (NVCA): National Venture Capital Association, (NVCA) advocates for the US venture capital community encouraging policies that encourage innovation and reward long term investment.

New Zealand Venture Capital Association, (NZVCA): New Zealand Venture Capital Association, (NZVCA) has, as its mission to ”develop a world-best venture capital and private equity environment for the benefit of investors and entrepreneurs in New Zealand.

Tools

VC Options, a TurboFunderSM Tool enables the user to search our database of VC Firms providing financial capital to find those firms which offer capabilities and have established investment criteria which best aligns you’re your company’s needs.

Corporate VC Options, a TurboFunderSM Tool enables the user to search our database of VC Firms providing strategic capital to find those firms which offer capabilities and have established investment criteria which best aligns you’re your company’s needs.

The VC Options and Corporate VC Options Tools developed by the Sages permits you to utilize our processes to identify potential VC or Corporate VC investment matches resulting in a substantial reduction in your research time.  Spending the time to research several hundred VC / Corporate VC alternatives is time consuming and inefficient, especially if you can otherwise utilize this time to obtain a higher level of focus on issues directly related to your company’s growth and development.

Try the VC Options, a TurboFunderSM Tool Try the Corporate VC Options, a TurboFunderSM Tool