Ask HN: When to raise from angels
5 comments
The simple rule is: do it as late as possible.
The longer you can delay fund-raising, the less of a share you'll be giving up (or the more money you'll be getting for it), and the stronger your position (presumably). Some businesses raise money on an idea. Others raise money once they have a product with traction. Others never raise money at all. None of those approaches are wrong, but the cost of funding definitely decreases if you wait and decrease the risk on the table.
The longer you can delay fund-raising, the less of a share you'll be giving up (or the more money you'll be getting for it), and the stronger your position (presumably). Some businesses raise money on an idea. Others raise money once they have a product with traction. Others never raise money at all. None of those approaches are wrong, but the cost of funding definitely decreases if you wait and decrease the risk on the table.
The simple rule is: do it as late as possible.
I'd add a rider to this: Raise money as late as possible, but no later.
Yes, the longer you wait before raising money, the better the deal you'll usually get... but only until you reach the point of "we need to raise this money or we're going to go out of business". As PG has said on several occasions, the term "angel" is a misnomer; they're sharks who can smell blood, just like any other investors.
I'd add a rider to this: Raise money as late as possible, but no later.
Yes, the longer you wait before raising money, the better the deal you'll usually get... but only until you reach the point of "we need to raise this money or we're going to go out of business". As PG has said on several occasions, the term "angel" is a misnomer; they're sharks who can smell blood, just like any other investors.
I was wondering what is the practical norm. Perhaps some places where there is research on the subject.
Trying to figure out what is the average stage Web start ups raise. Before or After product on market ?
Trying to figure out what is the average stage Web start ups raise. Before or After product on market ?
From my experience, seed money from an angel generally doesn't take that much equity from you in return for giving you the ability to confidently work on your project (ie: pay yourself a micro salary, hire a person or two full-time, etc.). In most cases equity is going out the door -- you either give it to your angel in return for cash to make hires, or pay early-employees with more generous equity since you lack cash.
One thing that is particularly important to me is finding an angel that meshes well with you/the company, that you can learn from, and that can do a lot for the company once the product launches such as VC introductions, pull strings for marketing, product advice, etc. The right combination + luck may mean you can avoid VC money all together, or retain a lot more of your company during a series A. To summarize: someone that brings more value than just cash, therefore also deserves a decent equity position because of the additional value they'll return to the company in the future.
So to follow the advice already given, yes raising money late can be good but it can be a timely process. If you're picky about your angel then it will take even more time to find the right person, so you should start talking/networking as soon as possible. It took us almost 8 months to close angel money because of the "interview" process.
One thing that is particularly important to me is finding an angel that meshes well with you/the company, that you can learn from, and that can do a lot for the company once the product launches such as VC introductions, pull strings for marketing, product advice, etc. The right combination + luck may mean you can avoid VC money all together, or retain a lot more of your company during a series A. To summarize: someone that brings more value than just cash, therefore also deserves a decent equity position because of the additional value they'll return to the company in the future.
So to follow the advice already given, yes raising money late can be good but it can be a timely process. If you're picky about your angel then it will take even more time to find the right person, so you should start talking/networking as soon as possible. It took us almost 8 months to close angel money because of the "interview" process.
In addition, I think it's wise to wait with approaching investors (be it angels or VC's) until you have some actual stuff to show them. People (and especially investors) are hard to get enthousiastic with only an idea, whereas a pilot/demo can really trigger them to see the success in your startup.
A friend of mine did the same thing and simpy used screenshots of a static HTML-version of their web-app to show the VC's, and even that was enough to get them to invest.
A friend of mine did the same thing and simpy used screenshots of a static HTML-version of their web-app to show the VC's, and even that was enough to get them to invest.
I would do it only when absolutely necessary and there is no other way going forward.
I have a feeling that some people think about approaching a VC just because there is so much stuff written about VCs and funding and it seems necessary. I think it is not something you can't do without, and as other posters suggested, it's best to do it at the absolutely necessary point, if at all.
I have a feeling that some people think about approaching a VC just because there is so much stuff written about VCs and funding and it seems necessary. I think it is not something you can't do without, and as other posters suggested, it's best to do it at the absolutely necessary point, if at all.
When I do begin to work on my own startup, I plan to bootstrap as long as humanly possible. I want to avoid OPM (other people's money) as long as possible. Things will get a lot more complicated when you have other people to answer to
What is the usual stage for a Web startup to start approaching Angels for investment (50-100K$).
Is it normal to do it during development (Which, for web, mostly can be done on "Ramen"), or do it once you launch and have some traction (not revenue) ?