Benjamin Kuo’s Blog

I often run into entrepreneurs looking to raise their very first round of capital (whether that is angel funding or venture capital), and I find there’s a common mistake new entrepreneurs make: they don’t ask for enough money.

Wait a second–you say they’re not asking too much, they’re asking too little?  Yes, lots of entrepreneurs are looking to raise too small of an amount of  money–at least in terms of what angel investors and venture investors are concerned. Many angel investors, venture capitalists, and others who have raised money or help companies in the technology industry tell me the same thing, and in fact tell every entrepreneur they see the same thing.

Going to an organized angel group or venture capitalist, and asking for $50,000, $150,000, or even $250,000 is probably too little. Angel groups probably wouldn’t start looking at investing in your company until you need $500K, and venture capitalists probably not until you’re asking for $2.5 to $5.0M (and maybe more). Why is this? It’s simply an issue of efficiency. The number of investments any firm would have to track if they were only making small $250K investments; for a $500M venture capital fund, that would be an astronomical number of little bitty companies they would have to watch, have an observer or board member on, or otherwise pay attention to. Even angel investors would rather give a chunk of money to a company, and let them run, rather than have that company come back in three months begging members for more capital.

So what do you do if you need $50,000 to get your company off the ground? Well, unfortunately, you’re either stuck hitting up friends and family; mortgaging your house; finding a rich uncle; or maybe finding an individual angel with interest in your company. Or, figure out how you can bootstrap yourself through consulting or something similar. Or, maybe figure out how you could use a larger amount of capital, so that you are big enough to hit the radar of the more traditional financing sources.

This entry was posted on Tuesday, March 17th, 2009 at 1:26 pm and is filed under Advice, Angel Investing, Venture Capital. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.