Financing Your StartupPosted by Louis Lehot on March 19th, 2020 Louis Lehot, L2 Counsel, P.C. While many entrepreneurs think they should focus their efforts on venture capital financing, there are several more common sources of funding for early-stage companies. This article will highlight the differences between two common early-stage financing rounds. Friends and family financing round The first capital you obtain will likely come from your own savings or your personal network. Investors in this early financing round can provide anywhere from 000 to 0 000 of their own wealth because they feel a personal connection to the entrepreneur or are motivated by the idea of the startup. Because this round consists primarily of those in your personal network, it is referred to as the “friends and family” financing round. Your personal network is a convenient way to raise capital, however you should ensure you
Angel investments come from small firms formed primarily for investment purposes, or from
2. Investment size The average capital raised from a friends and family round is 000, whereas the average angel investment is 000, with the median investment size being around 0 000. 3. Valuation of the startup at time of investment During the friends and family financing round, a startup typically has a valuation between --content--.5 and million. During an angel round, a startup typically has a valuation between and million, and requires the board to retain around 10% of its equity. 4. Time to close the investment deal A friends and family investment can provide immediate financial assistance as it takes only around two months to close the deal. An angel investment will take between three and six months to close, however this could be extended if the investment is through an angel group that has a structured review process. 5. Chance of repeated investment 6. Cost of the financing round While not every startup will pursue a friends and family or angel investment round, they should Louis Lehot is the founder and managing partner of L2 Counsel, P.C. Like it? Share it!More by this author |