THE SYNERGY BETWEEN ANGEL NETWORKS AND CORPORATE VENTURING
TOUGH TIMES FOR STARTUPS
The growth of a seed or start-up company is heavily dependent on the availability of risk capital. In early-stage companies, traditional sources of financing come from personal savings, family and friends, and severance packages. This form of financing, sometimes called “love money,” is usually sufficient to finance market research and to explore a product concept, but is rarely enough to reach prototype development. At this stage, entrepreneurs must begin looking for new sources of financing. In most cases, venture financing is not appropriate, as venture capitalists are reluctant to examine opportunities where the total financing is less than $1 million. As a result, angel investors, who are typically successful entrepreneurs with seed capital and acumen, help to bridge this financing gap.
When love money has been expended, many start-ups will pursue grants and government funding. In Canada, examples of these funding sources include the Scientific Research and Experimental Development Program (SR&ED) and the National Research Council’s Industrial Research Assistance Program (IRAP). Some may choose debt financing in the form of low-interest loans or credit card advances, while others pursue supplier or angel capital. Despite these multiple sources, raising early-stage capital to fill the gap between love money (e.g., $150,000) and professional venture capital financing (e.g., $1 million) is still difficult.
ANGELS FILL THE FUNDING “GAP”
Angel financing is one of the few early-stage “smart money” sources that can fill the early-stage financing gap. As Carleton University professor Allan Riding remarked at the University of Toronto’s “Financing Innovative Continue reading