The way venture capital financing gets doled out is rapidly changing, accordingaccording to a new article published by Business Insider.
There has been much chatter about trends such as “superangel” financing, delayed IPOs, and secondary markets says the author of the piece, Pascal-Emmanuel Gobry. But it goes far beyond that now, and not only for technology-related companies. There are many new financing options for growing companies that were not available a decade ago. Anyone hoping to land a venture capital job or move around within the space should be familiar with them. The new forms of funding include:
Crowdfunding, where groups of investors join together to fund start-ups. One example mentioned is AngelList, sort of a “Match.com” for investors, which allows startups to vie for capital from angel investors and VC firms. Another example is Kickstarter, which helps innovators raise funds in very small increments. Startup principals do not sell equity in their business; instead, they seek small donations in return for “perks” such as a special edition of a book in the case of a startup publisher. Pledges are charged to a donor’s credit card.
Accelerators include organizations such as Y Combinator, Seedcamp and TechStars, and have focused mostly on the technology sector. Accelerators coach startups for a period of time in return for a small piece of equity in the business. They also introduce startups to investors who may be able to take the business to the next level of funding. Accelerators are similar to the early “incubators” popular during the dot.com era, but are paying closer attention to the sustainability of business models and being far more selective as to who they support.
Super-Angels. Super-angles are gradually replacing venture capital firms at the early stage for many startups. In the past 10 years, the amount of capital needed to launch a tech firm has dropped substantially. Thus, a small amount of money from a super-angel, supporting the right idea, can deliver a huge ROI to investors. These smaller VC firms are nimble, have their finger on the pulse of the tech industry, and are quick to act.
Late-stage IPOs. Even the IPO space for startups is changing, notes Gobry. There’s an increase in “DST” style deals, modeled after investments by Digital Sky Technologies in companies such as Facebook, Zynga and Groupon. Unlike traditional VC deals, these deals typically offered higher valuations, less control over the funded company (often with no board seats or observer seats), and offer liquidity for company insiders, not just the company itself.
Another characteristic of late-stage IPOs is that they may provide liquidity on an ongoing basis, with the investor buying stock initially, then buying more at later dates from company insiders.
The bottom line is that startups have more choices for funding than ever, which should be good news for innovation. You might want to check out the original article at BusinessInsider for the charts and graphs that illustrate these concepts. In the meantime, do you think this expansion in choices for funding will spawn new types of venture capital firms and more venture capital jobs? Add your comments below.
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