If you're just launching a startup, you're in luck. Getting the initial investment for your company is easier than it's been in a long time.
The reason? Angel investing is hotter than hot, causing all sorts of disruption in the world of funding. Paul Graham, founder of Y Combinator, a sort-of school for startups, explains the "new funding landscape," in an essay on his site.
In short, there's used to be two types of people investing in startups: Traditional VCs who made large investments using other peoples money and angel investors, who were usually rich guys spending a few thousand dollars of their own. The angel investors would team up to invest around $500,000 or less in a company.
Today, there's a third investor: The super angel, who is a hybrid of a VC and an angel. A super angel invests in startups using other people's money like a VC. A super angel invests in a large number of startups, and does so rather quickly, almost casually, like an angel.
Naturally, there's competition between all three groups for a startup's attention. That means startups can get better deal terms, faster.
As an aside from all the talk of angels, super angels and VCs, we'd also like to point out that there's real money flowing through the system right now.
A month ago, a New York based digital media exec told us, "If you can't get money for your startup right now, then there's something wrong with you." He was talking about New York, where the startup scene is flourishing. And there's "hedge fund" guys, as in people with money that are willing to spend it on startups.
Those hedge fund guys are another form of angel investor. They don't mind spending a few thousand to get in on the ground floor of a new company. Another person in the New York Tech scene explained, "If you're a hedge fund guy, you're used to billions. And when you see valuations in the millions, it seems like nothing to invest."
The downside to these investors: they don't know the business as well.
The influence of these new investors spreads beyond New York. If it's competitive to do a deal on the East Coast, it trickles out to the West Coast, as well.
Beyond the hedge fund guys, there are also big corporations with cash. Google has Google Ventures. AOL has a venture division. These companies are also changing the landscape, making things better for startups.
Back to the world of angels, super-angels, and VCs. How do you, as a startup, decide who to partner with? There are advantages to choosing each group.
With an angel, you get favorable terms, and you get them quickly. But, you'll have to pool together a few angels, which can be frustrating. With a super-angel, you get more money in one go, but you get some of the downsides of an angel investor.
What are the downsides? Less attention because angels and super-angels are investing in 10 companies at a time. A VC, on the other hand, only makes one or two investments per go. The portfolio is smaller, and the VC spends more time with the company.
Sounds nice, but don't forget a VC wants a bigger chunk of your company. Are you willing to give up a bigger slice of the pie early on for more attention?
All of these are really minor quibbles. As we said, the good news here is that there's money out there to fund startups, and there's a new breed of investor shaking up the system which is benefiting startups.