The younger the company, the more important the role of the business angel. It is very important to be aware of this to understand when to contact the founders.
The different stages
For tech startups, there are a series of typical stages to navigate their state of development. Below we have listed the most important stages for a BA to be aware of, with a particular focus on the Pre-Seed, as this is the funding round that founders most often approach BAs for.
Please note that these descriptions are intended to give you a general idea of each stage of maturity but keep in mind that the exception is the rule in the investment world.
- *1. The founder has an idea but has not yet built it. The co-founding team is not yet formed and the capitalization table (if the company exists) is 100% owned by the founders.
At this stage, these companies are usually financed by the founders' own funds and sometimes by small amounts raised from friends or family (also called love money). Investment <€250k
- *2. Pre-seed ** At this stage, the founders usually have an MVP (Minimum Valuable Product) which, although not very complex, allows them to validate the major elements of the company such as the need for the product, the distribution strategy, the characteristics of the product, its price or other... In the case of highly technical products in specific sectors such as BioTech, MedTech or DeepTech, it is also possible that the team does not have a product at this stage. Regardless of the state of the product, at this stage the founders need to be in discussion with potential customers allowing them to validate the initial idea without necessarily generating revenue.
Types of funding: Business Angels, small VC funds. At this stage it is very common to see fundraising in debt. Investment between 250k€ and 500k€.
- *3. Seed ** These startups are by definition slightly more advanced and therefore less risky than the previous stages. Typically, the team will have deployed a first MVP and tested it with customers. Beyond the product, the other functions of the company should also be under development with initial results of tests and strategic choices, notably on customer acquisition and distribution strategy, but also a first idea of a growth plan for both the product and the team in order to realise the founders' ambition and vision. In terms of pure results, it is preferable that at this stage the startup can report some traction, regardless of how the traction translates into the company's specific model or vertical. It could be revenue, user base, product advancement or whatever. In short, it's time to get down to business and the founding team needs to show first concrete results that also prove their ability to execute.
Types of funding: Business Angels and angel syndicates, VC funds dedicated to early-stage. At this stage, it can be either debt or equity. Investment between €500k and €1M
- *4. Seed Extension / Seed 2/ Bridge ** There are several terminologies for this stage but they all indicate the same thing: The startup has raised a Seed, and although it has progressed, it has not reached the goals it set for itself to reach a level of maturity that would allow it to raise a Series A and therefore, wishes to buy itself time with additional money at the Seed level
Types of funding: Business Angels and angel syndicates, VC funds dedicated to early-stage, funds specialised in seed extensions. In this case it is very often BSA Air or convertible notes with terms similar to those of the seed. Investment between €250k and €1M
Plus l'entreprise est jeune et plus le rôle du Business Angel est important. Il est très important d'en prendre conscience pour comprendre quand contacter les fondateurs.
5. Series A. At this stage, traction and growth must be there. The product is built, it works, it has a quality level at least similar to the competition and above all, it is on the way to becoming the best. In terms of customer acquisition, the curve is exponential, the unit economics are known and largely mastered (CAC, LTV, GM) and one of the company's major problems is now to deliver a very/too high demand (this is an important sign of PMF - Product Market Fit). On the revenue side, again the monthly growth is in double (or triple!) digits and the company is on track to become a unicorn if the size of its market allows it to. In an ideal world, all of the above would be true, but in reality, it rarely happens and if it does, it will be a highly sought after and therefore highly competitive opportunity for investors
Types of funding: Business Angels from previous rounds wishing to continue/extend their involvement, generalist VC funds. Series A are all equity if not already done in previous rounds. Investment between €1M and €5M
6. Series B, C, D ... Although these are very common for startups still growing, it is unlikely that you will participate as a Business Angel. That said, if you are present in these rounds at the capitalization table, they will be lucrative for you and may even represent exit opportunities (ROI).
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