Keeping Up With All The New Funding Models

Keeping Up With All The New Funding Models

A few months ago I outlined a report card that could be used to assess a startup ecosystem’s progress.  It broke up a startup ecosystem in to five categories; funding, talent, direct needs (infrastructure), environmental essentials, environmental factors.  Needless to say the largest factor is funding, representing 45% of the total grade.  At the time I only listed three ways of grading funding:

  1. Quality of Angel Investors (ability to connect you to VCs and other companies, mentor, etc…)
  2. Quantity of Angel Investors
  3. Local and Locally Cooperative VCs

I’ve been thinking for a while that these three are no longer adequate to represent the world of startup funding.  I have been brainstorming a better way of dividing up the last segment to represent everything except the most traditional of Angel investments.  Well fortunately, this brainstorming is no longer necessary.  Chris Dixon has taken care of that for me with his post on the segmentation of the venture industry.  I suggest you read the post because it has some great thoughts on why this has happened.  In this post, I’m more interested in what the categories are.  He lays them out this way:

  1. Mentorship programs like Y Combinator help startups ideate, form founding teams, and build initial products. I suspect many of the companies they hatch wouldn’t exist at all (and certainly wouldn’t be as savvy) if it weren’t for these programs.
  2. So-called super angels provide capital and guidance to a) hire non-founder employees, b) further product development c) market the initial product (usually to early adopters), and d) raise follow on VC funding. Often current or former entrepreneurs themselves, super angels have gone through this stage many times as founders and angel investors.
  3. Traditional VCs (Sequoia, Kleiner, etc) help companies scale and get to profitability. They often have broad networks to help with hiring, sales, bizdev and other scaling functions. They are also experts at selling companies and raising follow-on financing.
  4. Accelerator funds (most prominent recently is DST) focus on providing partial liquidity and preparing the company for an IPO or big M&A exit.

With this in mind, I’m breaking out my #3 to reflect Chris’ divisions.  This leaves us with the following ways of evaluating an ecosystem’s ability to fund startups.

  • Quality of Angel Investors
  • Quantity of Angel Investors
  • Mentorship Programs
  • Super Angels
  • Traditional VCs
  • Accelerator Funds

Note:  Eventhough there has also been a lot of change in the angel investment category (with the expansion of Angel Funds and VCs offering Seed money), I still believe that looking at quality and quantity of angel money in an ecosystem is acceptable for evaluating it.