Startup Funding and the New Investment Landscape

Startup Funding and the New Investment Landscape

We have noticed in our travels that we encounter more and more strategic investors, aka corporate VCs (CVC), turning up at events – and even at our own Investor Breakfasts – as curious as anyone else about what’s being developed out there – and what they might find that’s under the radar.

Early stage and very early stage companies don’t seem to scare them off anymore.

Our friend and SOS reader Jessica Peltz-Zatulove– and CVC, who will be speaking at one of our breakfasts very soon, right, Jess? – co-authored an excellent piece that takes a look Inside the Minds of Corporate Venture Capitalists for CB Insights, and one thing is certain: CVCs are paying attention to the online world – and to startups in particular – as they never have before. “One-fifth of all venture deals in Q3’15 included CVC participation… Since 2014, over 127 new CVCs have been formed, further validating CVCs as viable and valuable sources of capital within the startup ecosystem,” the piece states.

And they’re not as necessarily as focused on financial returns as are ‘traditional’ investors: large companies don’t necessarily innovate, and instead tend to look outside of the company for a possible value-add. If they are in your vertical, they may also add a wealth of subject matter experts to whom you might not previously have had such ready access.  And note to self: they may not necessarily lock you in to their company exclusively, should a potential competitor come a courting. Make sure to read your agreement. Carefully.

There are potential downsides to going this route: the decision process may take longer, although that seems to be changing, according to the CB Insights piece. And they may promised the money, then write the check based on the parent corporation’s schedule, not yours. If you want more information on CVCs, the piece is a must-read, especially since the Number Of New Corporate VCs Set For New High In 2015 and not only is the number growing: U.S. corporations make up nearly half of new CVCs since 2014, and are coming from all industries.

CVCs also aren’t necessarily victims of the pattern recognition fail, as we have seen in the sometimes lemming-like behavior of their traditional VC counterparts.

Not that just because you’ve been funded by a Corporate – or any investor –  you’re done. We’ve already seeing what that mindset has led to (Google Ventures Dials Down Seed Deals, Urges Mature Startups to Go Public)

Then there are the accelerators, which seem to have multiplied exponentially, with over 300 in the US alone (some of those might be incubators, which are not the same thing) and we’ve seen the number go as high as 467, according to Angelist. But who’s counting? No, seriously, we’d like to know if anyone is keeping an accurate accounting, globally, as we could not find a definitive number, tried though we did. However, according to Techcrunch, These Are The 15 Best Accelerators In The U.S. (and Yours Truly is a mentor at two of them), FYI.

Also interesting is Why the Number of Accelerators Is Accelerating. Basically, so that angel investors can diversify their portfolios – and hedge their bets, of course.

We have heard some of you express hesitation when it comes to applying to an accelerator, citing the amount of equity one has to surrender for what amounts to not a lot of investment money (usually $25k-$40k), neglecting to factor in the support a good accelerator can give in terms of infrastructure (giving you free access to legal help, et al), mentoring, making introductions to potential partners whom you might not have otherwise met with you – and demo days, which are rife with all of the investors on whose radar you want to be.

We’ve heard varying feedback on accelerators from investors as well. Everything from, “not all accelerators are the same” (true, so choose wisely and make sure to talk to companies who’ve been through those accelerators – multiple companies, not just one or two), to “three or four months is not enough time to build a company” (true, but many companies have gotten at least some traction prior to applying to the accelerator, so they’re not necessarily starting from square one). But the bottom line is: no matter what pros and cons those investors might express about accelerators, we do see them in attendance on Demo Day: no investors wants to miss out on what may well be the Next Big Thing, or even a sizeable exit.

We bring this all to your attention as we do know that investors tend to unplug around this time of year, but come January, they’ll be back and as you start planning your strategy for next year, just want you to keep these alternatives in mind. There are a few accelerator deadlines coming up that you might want to consider, and no doubt more to come in the new year. Time to start thinking outside of the box on which you might have been so focused. Thought we’d offer other avenues to consider besides angels and VCs, in order to help you  potentially move onward and forward.

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