It used to be that venture capitalists either went big or went home. If the investment wasn’t $1.5 million or more, the deal just wasn’t interesting to them. Unfortunately, this often left early stage companies facing a funding gap between what they could raise from family and friends and the big money the VCs wanted to invest. Angels helped fill the gap, but this still left limited options for the entrepreneur looking for money in the $250K to $1.5 million “no-man’s land.”
Now, with the IPO market in shambles and big exit options becoming more limited by the day, a new breed of VCs is stepping in to fill the funding gap. I spoke with Don Rainey, a partner at D.C area Grotech Ventures, about this new trend. Don explained that many VCs are now willing to go smaller and earlier because it gives them the opportunity to get a much lower valuation and therefore a bigger upside. He also added that it gave the early stage VC an inside track on later rounds. We also discussed the funding/startup environment, which he felt was currently more balanced for the entrepreneur and less biased toward the VC, and how the investment criteria for early stage companies are different than for a larger, more mature investment.
Click on the link below to listen to the interview.