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Angel Investing
Angel Investing >
Market Conditions
Market Conditions
The following diagram from the Center for Venture Research summarizes the current and near term
future of the private equity market.
At the inception, or pre-seed stage, the venture is owner/inventor financed through a variety of
bootstrapping methods. Capital requirements are small at this stage and as such bootstrapping presents
a viable growth strategy for the short term (Freear, Sohl and Wetzel 1995). As the venture begins to
develop, but is still in the pre-seed stage of growth, friends and families tend to be the source of small
pools of capital. If this financing is not overburdened with terms and conditions that may impinge on
professional equity capital at a later stage, these sources are useful to begin product development, but
are not considered to be classic investment capital (Sohl 1999).
As the entrepreneurial venture grows, so does the appetite for cash. At this point, the seed and start-up
phase, private investors are the major source of external equity capital. This relatively invisible source is
the oldest and largest segment of the venture capital industry and is made up of individuals that are selfmade
millionaires, typically with substantial business and entrepreneurial experience. While estimates of
the scale of this informal venture capital market are difficult to ascertain with any degree of certainty, a
conservative estimate suggests that between 300,000 and 350,000 angels are investing approximately
$30 billion every year in close to fifty thousand ventures. The typical angel deal is an early-stage round
(seed or start-up) in the $100 thousand to $2 million range, raised from six or eight investors.
As a complement to the angel investor, institutional venture capital funds, the visible segment of the
private equity market, invest primarily in later-stage and larger deals. This move to later stage represents
a systemic, rather than a reactionary trend, and is evident over the last decade. A typical round of
financing from a venture capital fund is a later-stage deal in the $10 to $15 million range, with average
size of rounds steadily increasing.
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