Since later-stage has dominated VC investing, angel and incubators are filling the gaps in the early-stage.
Angels and incubators have become more recognized and better understood as a capital source. They command larger pools of capital than ever before and are increasingly better organized, making it easier for businesses to locate them and converse with them in an effort to secure capital.
Globally, participation by angels and incubators is up overall, but there are currently geographic disparities in terms of
activity. This suggests that some markets are better served at the early stages than others, and that some countries offer a much better environment for start-ups than others.
In the 2013, there was significant increase in the angel and incubator participation rate at the start-up stage in the US,
which nearly doubled from 13.7% in 2007 to 25.5% in 2013. In Europe, the increased interest in start-ups was even more significant, up from 4.6% in 2007 to 26.8% in 2013.
VC funds are increasingly recognizing the contribution of angels and, in some cases, are collaborating on earlystage investment with them. This is sometimes done on a personal or a fund basis, although this involvement is not well documented in terms of formal activity statistics. In another interesting development, at the very early stages of the company life cycle, where even angels are hesitant to join in, crowfunding is increasingly filling the gap in markets such as the US and Europe, extending the choices and support open to entrepreneurs at the very early stages of development.
Corporate VC continues to lend weight in the later rounds and stages. Corporations are increasingly looking to VC-backed businesses to fill gaps in their innovation pipeline and enhance treasury returns.
As a general rule, corporate investors prefer the later funding rounds, when companies that have been somewhat de-risked are at the revenue-generation stage and where the product or service can be integrated in a short period of time to drive revenue growth or other synergies in their business. Historically, they have been most active in the bussiness and financial services setor,
information technology and health care where their presence ensures consistently higher pre-money valuations than those without such investment.
The indications are that the prospects for entrepreneurs seeking funding are stronger than they have been for some time at every stage of the funding ecosystem.
Ultimately, of course, despite the range of funding alternatives, investors will be attracted to those businesses that they perceive as having the right growth story and the right management team that comes to market at the right time.
Courtesy of EY