‘Near Impossible’ for Entrepreneurs to Raise Seed Money

According to an article that ran last week in Boston Business Journal, angel investors are looking the other way when entrepreneurs come a-knockin’ for seed money. “Angels are moving upstream, looking to dole out more money and take fewer risks,” says the Journal. “Meanwhile venture capital firms anchored by huge funds are increasingly looking to invest larger rounds of cash. Entrepreneurs say that combination has made tapping into angel capital, once fertile ground for early-stage funding, trickier in recent years.”

Angel investing overall is up — 10.8% from 2005, to $25.6 billion last year — but a growing number of angel investor groups have popped up in recent years, creating an environment where these groups function more like mini-venture capital firms, more process-orientated and conservative. And as VC investments have gone up, so too have angel deals, which used to hover in the $100,000 to $1 million range; now a common starting point is $500,000.

The CEO of Boston-based Sensors for Medicine, Christopher LaFarge, tells the Journal that the new dynamic “has made it damn near impossible for entrepreneurs to raise capital in a reasonable time frame and with any kind of reasonable probability.” It took LaFarge almost two years to raise $2.5 million, which he acquired through meetings with about 30 investors.

The CEO of Pluromed, Jean-Marie Vogel, also stuggled to find early funding, causing him to dip into his own pocket and take a $250,000 loan from a friend. After a year of trying, Vogel raised $1.6 million in startup capital from angel groups, and he recently closed a second round of $2.4 million. In total Vogel says he spoke to roughly 500 investors throughout the process.  

Vogel says early-stage companies may be better off seeking out individual angels than angel groups. Sound advice, it seems: “Companies we are seeing have been around one to three years, whereas previously it was three months,” Charlie Cameron, founder of the angel investment firm Hub Investment Management Group, tells the Journal. “The market doesn’t pay us to take that early-stage risk anymore. I let friends, family and fools take the early-stage risk.”

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