Seed Stage – Startup Funding Life Cycle

In the Funding Life Cycle, once an idea has surpassed the concept stage the next stage of a new venture is known as the “Seed Stage”. During this early stage, entrepreneurs approach investors including friends, family, and angel investors to find financial support for their concept or product.  These investors typically initiate a high-level investigation of the technical, market and economic feasibility of the opportunity.  If the concept appears feasible, the investor may support the entrepreneur with time and financial resources.  Once this occurs, entrepreneurs take the first steps in forming the company and developing the concept. If the entrepreneur finishes the seed stage, they progress into “Early Stage“. Following the early stage is the growth stage, then mezzanine being the last ultimate stage.

Angels are individuals who provide investment and intellectual capital to entrepreneurial startups. These resources are provided to startups 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.

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.

There are two types of angel groups, angel networks and angel funds.  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 has revealed the typical stable angel group with 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 among 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 the 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.

 

Several of these Angel Funds and Networks are spotlighted on our FundingSage  Startup Investor Spotlight. Learn more about potential Angel and VC investors there!

Angel Funds and Networks

10x Ventures

37 Angels

3C Capital (RAIN FUND NETWORK)

460 Angels

Acorn Angels

Active Angels

Advising Angels

Aggie Angels Network

AIM – Auburn Angel Network

AIM – Central Alabama (Birmingham) Angel Network

AIM – Central Gulf Coast Investor Network

AIM – Gulf Coast Angel Network

AIM – Shoals Angel Network

Akron ARCH Angels (Akron Regional Change Angels)

Alliance of Angels

Amplifier Capital

Angel Capital Group

Angel Investment Forum

Angel Investor Forum

Angel Venture Forum

Angels Corner

Angels’ Forum

Angels of Southwest Louisiana

Angels on the Water

Angelvision Investors LLC

Anges Quebec

ARC Angel Fund

ArcView Angel Network

Ariel Southeast Angel Partners

Arizona Tech Investos

Astia Angels – NYC

Astia Angels – San Francisco

Atlanta Technology Angels

Baltimore Angels

Band of Angels

Baylor Angel Network

BC Angel Forum

Beacon Angels

BELLE Capital

BELLE Michigan LP

Bellingham Angel Investors BAI)

Ben Franklin Central / North Angels

Billiken Angels

Biltmore Angel Group

Bit Angels

Blu Venture Investors

Blue Water Angels

Bluegrass Angels

Bluestem Ventures

BlueTree Allied Angels

Boise Angel Alliance

Boston Harbor Angels

Boynton Angels

Brightspark

Brightstar Wisconson Foundation

Broadway Angels

Buffalo Angel Network

Capital Community Angels

Catalyst Fund, LLC

Centennial Investors

Central Florida Technology Ventures

Central Illinois Angels

Central Texas Angel Network

CEO Ventures

Charleston Angel Partners

Chattanooga Renaissance Fund

Chemical Angel Network

Cherrystone Angel Group

Clean Energy Venture Group

Coachella Valley Angels

Common Angels

Core Network

Cornerstone Angels

Cowtown Angels

Crossroads Venture Group

CTEK Angels

Delaware Crossing Investor Group

Desert Angels

Dingman Center Angels

East Central Ohio Tech Angels

Eastern New York Angels

eCoast Angels

ECS Angels

Element 8 Angels –  (Formerly Northwest Energy Angels)

Empire Angels

Enterprise Angel Group LLC

Excelerate Health Ventures

Executive Forum Angels

Family Media Angels

First Angel Network

First Angels

Florida Angel Investors

Florida Angel Nexus

Fort Point Angels

Frontier Angel Fund

FSI Angel Network

Full Stack

Georgia Angel Network

Go Beyond Network

Golden Angels Investors

Golden Seeds LLC

Golden Triangle Angel Network

Gopher Angels

Grand Angels

Granite State Angels

Great Lakes Angels

Hawaii Angels

Hulumni Angels

HealthTech Capital

Heartland Angels

Hivers and Strivers

Houston Angel Network

Hub Angels

Hyde Park Angel Network

iGan Partners

Ignition Point Capital Group

Impact Angel Group

Inception Micro Angel Fund

Innovation Works

Investors Circle

Irish Angels

Jumpstart New Jersey Angel Network

K Street Capital

Kiretsu Forum

Lancaster Angel Group

Landmark Angels

LaunchBox Digital

Launchpad Venture Group

Life Science Angels

Long Island Angel Network

Louisiana Angel Network

Louisville Enterprise Angels

Main Street Venture Fund

Maine Angels

Maple Leaf Angels

Marquette University Golden Angels

Mass Medical Angels

Maverick Angels

Maximize Angel Investments

Merced Angels

Michigan Angel Fund

Mid Atlantic Angel Network

Mid-America Angels

Mid-Atlantic Bio Angels

Midwest Venture Alliance

Mississippi Angel Network

Myeloma Angels

Nashville Capital Network

NCIC Capital Fund

Nebraska Angels

New Dominion Angels

New Mexico Angels Inc

New Richmond Ventures

New World Angels

New York Angels

Newfoundland& Labador Angel Network

NJIT Highlander Angel Network

NO/LA Angel Network

North Bay Angels

North Coast Angel Fund

North Country Angles

North Dallas Investment Group

North Texas Angel Network

Northeast Angels

Northern Michigan Angels

Northern Ontario Angels

NueCura

Ocean State Angels

Ohio TechAngels

Oregon Angel Fund

P3 Alliance (Purdue Angel Network)

Pasadena Angels

Phenomenelle Angels

Piedmont Angel Network

Pine to Prairie Fund

Pipeline Fellowship

Pittsburgh Equity Partners

Plains Angels

Point Positive Inc

Puget Sound Venture Club

Queen City Angels

RAIN Source Capital

REES Capital LLC

River Valley Investors

Robin Hood Ventures

Rochester Angel Network

Rockies Venture Club

RTP Capital Associates

Sacramento Angels

SAGE – Shasta Angel Group for Entrepreneurs

Salt Lake Life Science Angels

San Joaquin Angels

Sand Hill Angels

Sand Hill Angels LLC

Saskatchewan Capital Network

Seed Capital Fund of CNY

Seedstep Angels

Seraph Capital Forum

SF Angels

Show Me Angels

SideCar Angels

Sierra Angels

Silicon Pastures

SLO Seed Ventures

SNK Investments

SoundBoard Angel Fund

South Coast Angel Fund

Southern Willamette Angel Network

Southwestern Ontario Angel Group

Space Angels Network

St Louis Arch Angels

Stanislaus-Merced Angels

Stateline Angels

Sustainable Local Food Investment Group

Tacoma Angel Network

Tamiami Angel Fund

Tech Coast Angels

Tech Coast Angels

Tech Coast Angels

Tech Coast Angels

Technology Concept Fund, LLC

Texoma Angels

The Angel Food Network

The Angel Roundtable

The ArcView Angel Network

The JumpFund

Third Coast Angels

Thunderbird Angel Network

TiE Angels – Boston

TiE Angels – Silicon Valley

Topstone Angels

Triangle Angel Partners

Tribe of Angels

Tribeca Angels

Tri-State Private Investors Network

TriState Ventures

Twin Cities Angels

Tyler Texas Angel Network

Upstate Carolina Angel Network

Urbana-Champaign Angel Network

US Angel Investors

Utah Angels

Valley Angel Investment Fund

Vancouver Angel Technology Network

Vegas Valley Angels

Virginia Active Angel Network

VisionTech Angels

Walnut Venture Associates

WBTangels

West Suburban Angels

West Texas Angel Network

West Virginia Angel Network

Wilmington Investor Network

WINGS – The Medical Technology Angel Group

Wisconsin Investment Partners

Wisconsin Super Angel Fund

Women’s Capital Connection

X-Squared Angels

York Angel Investors

York Angel Investors

ZINO Society

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 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 raise equity or borrow 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 the 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.

SMALL BUSINESS GRANT FUNDING

Introduction

Grants are funds, provided by a party, (grantmaker) such as a governmental agency, foundation, corporation, trust or industry association to the benefit of the recipient, which are not required to be repaid.  Such grants are usually based on an application or another form of written proposal or grant request.  Grants are usually provided to fund specific projects or objectives and typically require certain compliance and reporting to the grant maker. 

Information

Despite media and internet marketing to the contrary, small businesses grants are few and far between.

Grants that are available tend to be focused on very specific areas, typically in technological research and innovation or technology transfer and development. Other limiting factors include types of companies (i.e., non-profits) or specific classifications like women or minority-owned businesses.

There are numerous websites that seek to lure the entrepreneur into believing they will guide them to grant funding. They tend to lead to either a sponsored loan program or to a fee for service program. The bottom line is that pursuing grants as a means of funding start-up businesses general has a low probability of return.

There are some unbiased government sources of information related to grant funding:

Resources

WEBSITES – GOVERNMENT GRANT FUNDING

Small Business Administration: The SBA has a good introduction and description of the limited grant programs available through the Federal Government.

There are two types of grants that are available:

  1. Small Business Innovation Research Program (SBIR)
    SBIR is a highly competitive program that encourages small business to explore their technological potential and provides the incentive to profit from its commercialization.
  2. Small Business Technology Transfer Program (STTR)
    STTR is an important small business program that expands funding opportunities in the federal innovation research and development arena. Central to the program is expansion of the public/private sector partnership to include the joint venture opportunities for small business and the nation’s premier nonprofit research institutions.

Grants.gov
Grants.gov is your place to FIND and APPLY for federal grants. The United States Department of Health and Human Services is the managing partner for www.grants.gov/.

There is a search tool that allows a search for Federal grants by keywords or more specific criteria. All discretionary grants offered by the 26 federal grant-making agencies can be found on Grants.gov. You do not have to register with Grants.gov to find grant opportunities.

Defense Advanced Research Projects Agency (DARPA)
DARPA issues solicitations for research grants. These are exceptionally competitive.

The DARPA Small Business Programs Office has developed a tool to help small businesses define and prioritize the most important next steps in their path towards technology transition.

DARPA considers small business concerns as a primary source of innovative solutions. It seeks to expand small business relationships and training opportunities within DOD and other federal agencies and enable the small business community to create and transition radical, game-changing technologies that benefit the Warfighter, the federal government, and the commercial marketplace.