At the very early stages of a company, most founders reach out to a combination of friends, family and angel investors who are active in their ecosystems.
The majority of those in need of cash either access their savings or tap their friends and family.
Competition is stiff for wealthy patrons, known as Angel Investors, offering ‘seed’ capital, with valuable insights as well as open cheque books, looking to invest on average between £10,000 to £100,000, often in companies with no revenues, who can be accessed online and via crowdfunding sites.
The Government’s Enterprise Initiative Scheme, EIS and Seed Enterprise Scheme (SEIS) makes funding worthwhile for early investors in a ‘risky’ enterprise, by providing them with valuable tax breaks.
Alongside friends and family, early stage investors can also be a good source of funding at this stage. They will require slightly more mature ideas, but there is no shame in approaching them with the caveat that your idea might be too early in its genesis for them.
Just as it is for Angels, the VC industry is built on strong and extensive networks, and any good investor in either sector will be happy to help expand your thinking and effect introductions.
While these Angels will be choosing to invest in you, never forget that you are also positively accepting them to your top table. Hence, an important tip here is to always conduct some reverse diligence on your investors. Ask them where else they have invested, then go and ask those founders if the investors were indeed as helpful as they promised.
Timing your approach to a VC
While there is no exact rule on timing, founders move from angel to VC when they are further down the line and looking for institutional investment and a long term relationship that prepares them for an exit in structured ways. Sums will also vary, but a starting point will be in the millions, not the thousands.
It is also important to understand that the relationship between a founder and the VC is more important than just the investment. Sustainable and successful businesses are built on trust, alignment and teamwork.
A VC might want to sit on your Board and act as your co founder; and you should welcome this with open arms. The best VC will sit on your board and act as co founders. Co-ownership of your idea is far more highly valued in the time it takes to hold your hand than the money on offer..
What’s the difference between VC and Private Equity
VC is about building new products or services and growing a business from “zero to one”. Hence, VC gets involved from the early days of an idea, though less often from its infancy.
The best in class VCs are those that are really able to roll up their sleeves and work alongside the founders, helping them build product market fit, develop their sales channels, and help with future funding rounds.