Time to Invest in Early-Stage Fund
October 1 2008 by Fayazuddin A Shirazi
Encouraged by declining operating costs in financing startup companies, venture capital firms and angel investors feel the current economic conditions favor starting an early-stage venture capital fund.
Commenting in his blog post, “Angel Investing, Entrepreneurship and Learning”, Brock Blake, a serial entrepreneur and CEO of the FundingUniverse.com, a market place which connects qualified entrepreneurs with active VCs, angel investors and other lending sources, says this is a great time to raise an early-stage venture capital fund.
Quoting Rob Monster, of the Monster Ventures, an early-stage venture capital fund, in an article with the Seattle Post Intelligencer, Blake says: “To keep up the current pace of investment and incubation, and capitalize on current low valuations and low operating costs for funding startups, it is a good time to raise an early stage fund, and in 24 months, many of the companies we back today will be ripe for harvest.”
However, Blake points out that though this is an appropriate time to raise an early stage venture capital fund the investment limits for funding startups have to be a bit different. “I agree that it is a great time to raise an early-stage venture capital fund now. However, when I say “early-stage,” I’ don’t mean investments of $3 million to $5 million; I’m talking about investments between $750k-$3M,” he says.
Citing reasons supporting his views on the newly propounded investment limits by him, Blake, a frequent blogger on the latest trends in angel investing and entrepreneurship, says that there is a funding gap between the traditional angel investment limit of $300k to $750k and the traditional VC investment limit of over $3 M. So, with this new slab of investment ($750k to $3 million), these gaping disparities between the angel investment limits and the VC investment limits can be actively plugged, he says.
Besides, Blake feels, most of the current venture capitalists can’t play in that (read: $750k to $ 3M) investment space since their investment fund is just too large. “If a VC has a $100 million fund, it wouldn’t make sense for it to make 100 investments of $1 million each, because it would be difficult for them to manage all of the tiny portfolio companies,” points out Blake.
Alongside, with the technological advancements, Blake is also of the opinion that the capital requirements for starting a company have considerably come down. “As Rob Monster rightly says with the advancements in technology, it doesn’t require as much capital to start and grow a company as it used to be in the past,” remarks Blake.
However, he feels that there are some issues which are bothersome in setting up of early-stage funds. “I realize that there are a few aspects that detract us from investing in early-stage funds – one of them is that the deals are of higher-risk, because the company has yet to attract significant traction and/or revenue. That being said, I think the market is still under-served and opportunities are plenty,” says Blake.
- Read the Early-stage investment blog
- Read why early-stage venture investments fail?
- Does NYC need another early-stage investment fund?