IDCEE - models of early stage funding

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This is what Seedcamp looked like in the year 2010 – loads of events, startups, great mentors, and companies.

See the new additions to our portfolio in green

There are some more macro reasons for this talk – just the simple growth in numbers of successful entrepreneurs has widened the market.

This is what the funding cycle used to look like. See this in every single book, presentation, and paper about entrepreneurship and VC.

You can still segment the phases in seed, startup and growth parts, but things get a lot more crowded in the early stages.

Giving back and hopefully making money. Will always be there and are probably the most underrated of all investors.

These guys think of ideas for companies, either in cooperation with or in search of founders and management for these companies. Many of these models evolve out of corporate structures, universities or other constituents who feel they have a competitive advantage in their field. I believe they will be more successful this time around, mainly because of the cheaper nature of startups and fast paths to profitability. Important: deep pockets and a long breath, no probable quick successes. Also, need to make a decent amount of bets to work.

Giving back and hopefully making money – Angels are still here and are investing a lot of money. As always, they are very active in their respective domains and focus on smaller issues – they can’t afford to go for all of the trends at once.

Super angels are more professionally organised angel investors, often also investing OPM. They are very lean run organisations, often hinging on one or very few people. They invests small sums and are active in various markets – a very interesting phenomenon. We should eventually see these structures growing to be more sophisticated and “processized” when they get more capital and see where they are going.

These guys know what they are doing and they are simply adjusting to the realities in the market – startups are cheaper, and there is a lot to do in the early stage. Be prepared to see the later stages go through a similar disruption to what is happening in early stages now – there will be much more supply and opportunities in the typical b round stage in about 2 years, when a lot of great investments will be made.

I don’t feel any of the above categories to be fighting for deals – at least not more than before. We see investments all over the place including all categories of investors, so it is obvious that we all have adjusted to the new models. Seedcamp companies are raising across all of these categories (literally all of them) right now.

Three main reasons exist for these different categories of investors. The less expensive and simpler start up is the main reason for smaller investors to be so active. Small exits are quicker to reach, and companies in exitable size are easier to build. It might be less important than it seems to classify investors, but it is important to understand where each individual investor stands. Entrepreneurs should look for the right partner in any case – and no two companies are alike.

In essence, we will see much more professional investment in early stage startups, maybe increasing the quality substantially. Experienced investors can give input and feedback that might make companies successful or at last surviving. Also, more drawn out exits with stricter earn outs (or more operationally focused earn outs) will be interesting, since buying startups is a lot about transferring culture as well. In aggregate, we should see more entrepreneurs and founders – the current economic climate is still a great place to start.

We try to work with all different types of investors – because we need to. All of our companies come in different stages, in different industries and geographies. Sometimes it’s important to look out for the big scale and home run, sometimes its smarter and more fitting to take your time and find product market fit with a smaller investment.

The main reason this works is our position within our network of investors and mentors. We are able to scale the process, something which usually is very hard to accomplish. A lot of follow on comes fron our own investors, a lot of our mentors help out and become involved in the companies. This way, we both strengthen and play on the strengths of our network.

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