Empowering the Entrepreneur: When Capital is Not Enough

Earlier today, I had the opportunity to speak at the Google Startup Grind conference, which was a great gathering of entrepreneurs, venture capitalists and successful founders, such as Patrick Collison with Stripe and Adi Tatarko with Houzz.

Attending this event put in perspective just what an exciting time it is in venture capital and innovation today. The funding landscape is extremely dynamic and capital sources, particularly early stage, have dramatically increased. This is great for entrepreneurs, as their worlds are opened to funding opportunities that match their vision and ambition.

However, the number of choices and options means that making funding decisions is harder and more nuanced. I like to think about raising capital as a marathon. A sprint – or quick funding – pushes you ahead of the pack early on, feels great at the time, but it can quickly fatigue you. It is key to align funding with your long-term vision and make informed and strategic financing choices.

With that in mind, here are some of the thoughts I shared today.

Early Stage Funding Options

There are three key areas that are driving change across early stage funding: Angels, Accelerators and New Funding Platforms. Angel funding continues to gain momentum. According to CB Insights, in 2014, Angel financing reached more than $14 billion, compared to less than $8.5 billion in 2013.

One of the most interesting trends is that entrepreneurs are seeing success at a younger age. According to an HBR study, the founding age of entrepreneurs with startups valued at more than $1 billion ranges from 20-35, with the average age being 31, whereas in 2008, the average age was 39. Less capital is required to build a business, thanks to cloud technology and viral distribution, and as companies scale faster, it makes sense that success is happening earlier for entrepreneurs.

This trend means that it is likely that the number of younger “angel entrepreneurs” will increase. I’d posit that today’s entrepreneurs are even younger and already injecting a new source of funding. This month’s cover of Fortune counts more than 80 startups today valued at more than $1B, including companies like Palantir, Pinterest and Airbnb, all of which have relatively young founders.

Another resource for startups is the increasing number of accelerators. According to Crunchbase, the number of accelerators has grown from 25 in 2006 to 170 in 2013. And an organization like Y Combinator, which has funded more than 700 startups, demonstrates how significant this early stage support is. Sector-specific companies can also work with dedicated accelerators. For example, Citi Ventures partnered with Plug & Play Tech Center to launch a global fintech accelerator, which offers startups mentorship, feedback and advice about topics such as the regulatory landscape.

Lastly, new alternative funding platforms are an increasingly attractive option as well. In 2014, Kickstarter alone did $529M in crowdfunding pledges, which is more than $1000 per minute on average. Meanwhile, equity funding platforms like AngelList are facilitating connections across super angels, democratizing the syndication process and expanding the pool, upending the traditional VC construct.

What does all of this early stage activity mean if you’re an entrepreneur? You have the ability to select the capital source that will best support your needs. Capital is one credential for your business and can position you to execute on your vision. For example, a technology startup is well tailored to accelerators like Y Combinator or TechStars because they “validate” an idea thanks to a track record of successful tech entrepreneurs and the expertise and access they bring. Alternatively, crowdfunding sites are great options for consumer products to test market fit and consumer adoption prior to launch.

Later Stage Options

As we move beyond the early stage landscape, later stage venture capital also is experiencing dynamic change. Today, we see a significant amount of “value-added” capital, which means that investors provide more than just capital. Often, there are entire teams – a much deeper bench of experience – that are available to help a portfolio company, from marketing partners to industry experts and more.

Our team did some research and determined that six of the top 20 VC firms take a value-added approach. Additionally, three of the five most active VC firms, according to CB Insights, are value-added in our opinion. This is particularly interesting when you consider that two of them, Andreessen Horowitz and Google Ventures, didn’t exist until 2009.

When you look at the VC websites today, they are covered with stories about championing entrepreneur success, and this emphasis is indeed mirrored in team structures. Again, this is an exciting time for entrepreneurs and finding the right partner is important.

At Citi Ventures, we view value-added investing as our ability to provide startups with introductions to Citi’s businesses globally, facilitating inroads and connections to help entrepreneurs succeed. From early stage counsel on incubating companies or advising on enterprise sales to testing proofs of concepts in our global lab network or commercializing new technologies, Citi Ventures is dedicated to meaningful partnerships that will accelerate startups’ ability to scale.

Against this backdrop, the entrepreneurial journey is a long one, so remember:

1. Capital alone is not enough;
2. Look for funding options that match your mission, vision and ambition (and be honest about all of these things!); and
3. Seek investors who will help you scale your business and address your pain points; you will need partners on your journey.