Startups in the wireless space will need more than a good idea to secure funding in the year ahead, according to investors and technologists who track early stage funding. “You have to do all the basics — have a team, have an interesting product, and probably be on the market already and validating that with customers,” says author Robert Scoble, the startup liaison officer for Rackspace.
Angel investors are more important than ever to early stage startups, with venture capital firms focusing on larger funding rounds and longer time horizons than they have in the past. Veteran investor Bill Payne, a founding member of four angel investment groups, says that the average round of venture capital funding is now $7 million to $8 million, while the average angel round is typically $1 million or less. Therefore, he advises startups to consider successive rounds of angel funding rather than an angel round followed by a venture capital round.
“Plan to prove your business model and get to positive cash flow with angel money and without VC investment,” Payne said. “Then, plan an early M&A exit to a much larger player who is deliberating a ‘make versus buy’ decision on your business proposition.”
But the competition for angel funding is getting more intense, as hundreds of application developers and website startups compete for a pool of funds that is not necessarily getting bigger. Early data from the Center for Venture Research suggests that total angel funding may have dropped in 2011 for the first time in six years. And many of the deals that did get funded were not pure technology companies, but energy or health care startups with a sound technical or online strategy.
“If you don’t have a Facebook strategy, you’re stupid,” Scoble said. “Even if your strategy is ‘We are not going to use Facebook,’ that’s fine, but you better have considered it.” (Scoble’s video interview with Steve Farnsworth is on youtube.)
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