Investments and Funding
This article is written by Clinton James, a Contributor Author at Startup Turkey.
Originally from Pakistan and two of her companies were funded by Team Draper, Asra Nadeem has become a partner of an Early Stage Fund called Draper University Ventures that support startups that come through their own programs. It initially started as an experiment, but for the last four and a half years, they have had more than 400 active companies having come out of the Draper University having raised about 80 million in seed funding. Asra tells Startup Istanbul’s congregation that No one likes traditional studies anymore, hence they flip the models around.
From a definition, an investment is giving money to someone/something who would spend the money better than you or expecting a higher value rate of returns. Angel Investing is the first leg of investing stage which not only dwells on giving money but also holding their hands.
The general landscape of investments is as follows: Series E+ are the low risk investors but with high capital Growth Funders, Equity Funders and Corporates who invest hundreds of millions of dollars to companies that have revenue and are on the path of an IPO through their customers, growth projector.
Series A are the early stage funds with a cheque size of about 500 million and above. The companies they are investing in are slightly risky and may not grow as fast. They have an approximate return rate of about 10%.
Bridge funds are also like early stage funds that help by giving people bridge capital with some single digit millions.
Seed Stage funds, they support where there is a product, a customer(s) or users using your product and you’re on a growth trajectory.
Angels on the other hand, are people who come in on the early stage when you only have a promissory note using your product. Their cheque sizes are usually also very small of about $25,000 to $150,000. It’s a hefty risk with about 300 to 1000% interest rates in the long run as returns.
The other alternatives of funding are through Accelerator programs, crowd funding, sweat equity, bootstrapping, self-funding, friends and family funding.
Touching on the biggest problems in investments, is where everybody thinks that the Angel Stage Funding, is where you have an idea. The thing is, No one gives you money unless you have proven something with the idea.
Secondly, the need to be aware that Angel funding and Early-Stage funding are two separate things. So corporates that want to invest on an early stage are not considered as angels. Angels are individual people who want to put their own money into a product to sprout out.
As an Angel, every single amount of the money you put in the company is your own money and you are going to get. There is no hybrid and when you combine your own money with another person’s money, then they form part of the early stage fund and there is a particular financial structure that you have formed and has to be followed.