by Michael Zwilling
Even if you work every day in the world of new-venture funding, as I do, the options are confusing, and their meanings seem to change on a regular basis. I challenge any entrepreneur, for example, to define the difference between “seed-stage” and “early-stage” financing. Yet, knowing this distinction is important:
Remember, you have only one chance to make a great first impression, so it helps to know the lingo when dealing with investors. Asking for early-stage money before you have customers and revenue will likely kill your credibility with real investors.
Seed-stage, meanwhile, is technically that critical period when you need funding to do solution- and business-model development, to prove that your new product or service works, before you try to sell it to customers. Most investors won’t touch a first-time entrepreneur at this stage.
Luckily, there are some new entrants and approaches to seed-stage funding — if you know whom to ask — that can supplement the friends, family and bootstrapping approaches traditionally recommended. Here they are:
1. A crowdfunding campaign
Crowdfunding is rapidly becoming the major source of funding for seed-stage startups. According to recent statistics, there are already over 500 website crowdfunding platforms, such asKickstarter, available; and over $5 billion was raised this way last year. For those of you without a rich uncle, crowdfunding can work.
2. A seed-stage “super angel”
This is a relatively new term loosely applied to angels who invest their own money in a portfolio of startups (typically 20 or more) and are willing to lead multiple rounds, usually starting with a seed round.Ron Conway, of SV Angels, and Reid Hoffman, LinkedIn’s founder, are names often mentioned in this category.
3. A micro venture capital firm
Micro-VCs, by definition, are firms that invest institutional money (meaning other people’s money) in projects that are at the seed stage or are too small to attract the attention of more traditional venture capitalists. Currently, there are about 250 micro-VC firms, including such notable names as Mike Maplesof FloodGate Fund.