What Every Entrepreneur Should Know About Financing Right Now

Posted by Boris Wertz

Over the past few years, we have seen an explosion of startup activity as the traditional barriers to entry have come down. The ability to raise money no longer determines one’s fate. With lowered costs to build and run websites, acquire and retain users, virtually anybody can pick up coding and start a tech company.

At the same time, funding opportunities have expanded for early-stage startups. More money is flowing in from a new crop of angels, newly wealthy from a number of tech IPOs. AngelList makes it easier for founders to reach angels and there are hundreds of accelerators and incubators to choose from. On top of all this, crowdfunding has now become a viable funding option for many start-ups, particularly those hardware projects that have had a tough time getting funding from the VC circles.

But this boom landscape might change soon.

While the top of the funnel has grown with all the angel and early-stage activity, the bottom of the funnel is still roughly the same size (about 10-20 billion-dollar companies per year). We have all heard about the Series A crunch in the Valley (there might actually be up to 2,000 companies in the Series A pipeline right now), and perhaps there’s a Series B crunch now too.

Additionally, we need to watch out for two developments on the horizon. First, there will be a consolidation in the accelerator space, with the net effect of reducing the number of available spaces for start-ups. And, we should expect angel activity to drop as new angels discover that returns from their seed investments aren’t so easy to come by.

Any entrepreneur trying to navigate the financing landscape should be aware of the over-abundance of angel money compared with subsequent rounds. You need to assess early on if your business is venture-fundable. Is your opportunity at least $100 million? If not, revenue from your customers will be your best source of financing. That’s okay: many great companies have been built by bootstrapping.

There’s a lot of “easy” early-stage money floating around right now, but don’t get fooled into taking seed money if you don’t have a viable path for later rounds. It will just be leading you down the wrong track.

This article first appeared on Version One Ventures.

blog comments powered by Disqus

Boris Wertz

Boris Wertz

Boris Wertz is one of the top tech early-stage investors in North-America and the founding partner of version one ventures. His portfolio encompasses over 40 early-stage consumer internet and enterprise companies, including Edmodo, Flurry, Frank & Oak, Indiegogo, Julep, Top Hat, and Wattpad. He sits on the boards ofClio and Indochino among others. Boris is a venture partner of Munich-based... more




Who's Hiring



Recent Comments

Powered by Disqus