Mezzanine Financing – Startup Funding Life Cycle

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Mezzanine Financing – Startup Funding Life Cycle

The growth stage of a new venture that is late in the “Early Stage” continues into expansion stages that typically require mezzanine or bridge funding. This form of funding is made up of convertible debt or preferred shares, which are more costly and provide investors certain rights over the holders of common equity. Mezzanine financing is typically known as bridge financing because it finances the growth of expanding companies prior to an IPO.

Companies in the later stages of development generally have fully vetted business models, put in place a broad, multi-functional team, commercialized their product, and achieved reasonable sales momentum. The next step forward is to find additional financing to scale the company. The objective of the mezzanine funding is to add the fuel necessary to significantly accelerate the growth curve of the company.

Angel Investment
Corporate Venture Capital
Venture Capital

Angels are individuals who provide investment and intellectual capital to entrepreneurial startups. These resources are provided to startups in exchange for convertible debt and/or equity in the startup. In recent years, these investors began organizing into groups for the purpose of sharing the efforts related to identifying and assessing potential opportunities and pooling their investments.

Background Information

Originating from the theatre industry, the term “angel” originally described wealth benefactors who provided funding for theatrical productions. Today it applies to high net worth individuals, (accredited investors under the definitions of such by the SEC) who provide seed capital for scalable, high growth companies. The Angel Capital Association and the Angel Fund, the major industry associations in the United States both promote membership rosters which exceed 200 groups.

There are two types of angel groups, angel networks and angel funds. Groups whose members participate actively in the identification, screening, and vetting of the investment opportunities, who make their own investment decisions for each investment opportunity, and who invest as a group through a shared investment vehicle, are generally described as angel networks. When the members of the group invest based on established criteria and guidelines and primarily utilize the support of third parties to identify, screen and complete the due diligence on the opportunity, they are generally identified as a fund. Under the fund structure, members commit capital and invest in all opportunities identified as appropriate based on the criteria established for the fund.

Angel investment carries with it a high degree of risk. As a result, angel investors usually seek returns of 10X within five years as most early stage investments fail, resulting in the angel losing their entire investment. These issues cause the angel investor to focus on developing a highly diversified portfolio, thereby reducing the risk of the overall investment. Analyses over time has revealed the typical stable angel group with diversified portfolio returns at a rate in the mid to upper teens to the low to mid-twenties on a percentage rate basis.

The statistics concerning angel groups and investment vary widely.

Groups may have as few as 10 members or as many as 150.
Some syndicate, some don’t.
Some invest locally, regionally and nationally, even internationally, others invest only locally.
Different groups invest in different industries and at differing levels.
Smaller and newer groups may provide investments from $50K to $250K while large established groups may invest up to $1.5M or more.

It is therefore extremely important that the entrepreneur understand the angel groups structure, approach and criteria thoroughly. Otherwise, pursuing an investment from any given angel groups may be little more than a shot in the dark, wasting the entrepreneurs’ time and resources, something they have in extremely limited quantities.

Resources

Angel Capital Association
The Angel Capital Association, (ACA) is a “leading professional and trade association supporting the success of angel investors in high-growth, early-stage ventures.” With a membership of more than 200 angel groups and 12,000 angels / accredited investors, the ACA is a provider of professional development, industry representation, public policy advocacy and an array of benefits and resources to its membership.

ACA indicates its mission is “to fuel the success of angel groups and private investors that invest in high growth, early-stage ventures.”

Angel Pool
AngelPool is one of the largest organization of angels and accelerators in the world. They have a membership of Over 200 angel groups including 5,000 angels which share knowledge, deals, best practices, and learnings with each other. They are comprised of over 500 volunteer leaders who graciously volunteer their time on our various boards, judging and mentoring. Their mission is to help angels, groups, accelerators, and funds profitably find and invest in the best tech disruptors and founders globally to drive jobs, innovation, and growth.

Alliance of Texas Angel Networks
The Alliance of Texas Angel Networks, (ATAN) is a non-profit organization established to facilitate cooperation between the angel investor groups in Texas. Over the last several years, these groups have worked together and shared investment opportunities and “know how”.

Appalachian Regional Commission
The Appalachian Regional Commission, (ARC) supports various activities in order to promote entrepreneurship and business development in the Appalachian Region. Their objective is to help diversify the region’s economic base and enhance entrepreneurial activity by developing and marketing strategic assets, increasing the competitiveness of existing regional businesses, and fostering the development and use of innovative technologies.

Angel Association New Zealand
The Angel Association New Zealand was established in 2008 to facilitate the efforts of business angel networks and early stage funds to work towards an agreed national vision. The Association desires to increase the quantity, quality and success rate of entrepreneurial investments in New Zealand facilitating the strengthening of the New Zealand entrepreneurial ecosystem.

The primary objectives of the association are to:

Promote the growth of angel investment by encouraging and educating entrepreneurs, new angel investors and angel groups.
Ensure the ongoing industry success by developing an industry strategy, providing education and encouraging collaboration among its members.

Angel Resource Institute
The Angel Resource Institute, (ARI) is a non-profit organization focused on providing information on best practices and educational information related to the field of angel investing. ARI’s programs include educational workshops and seminars, research projects and reports, and information about angel investing for the general public. Their programs are available to those interested in the early-stage capital including investors, entrepreneurs, policy makers, entrepreneurial support professionals, and many others.

Australian Association of Angel Investors
The Australian Association of Angel Investors, (AAAI) is a not for profit company which serves as the national voice of the early stage investment community. Their objective is to provide a platform for the growth of the early stage investment capabilities of Australia. They provide information and resources, a platform for collaboration and internationally recognized professional development programs to the countries angel investors and entrepreneurs. AAAI also advocates on behalf of the participants in the entrepreneurial ecosystem to shape policy and uphold professional standards.

Business Angels Europe
Business Angels Europe, (BAE) is the European Confederation of Angel Investing. It represents the European Business Angels’ Federations and Trade Associations. Its objective is to bring together the most active and developed countries operating in the angel markets in Europe and serve as the voice of angel investing on the continent.

Council for Economic Development
Membership of the CED includes a wide range of startup companies, maturing entrepreneurial companies, corporate partners, investors, academics, service providers, and individuals interested in entrepreneurship. The organization, located in the North Carolina Research Triangle provides education, mentoring and capital formation resources to new and existing high-growth entrepreneurs.

European Business Angel Network
European Business Angel Network, (EBAN) fuels innovation and growth throughout EMEA. Representing the early stage investor community, EBAN membership includes over 145 member organizations from 46 countries throughout Europe, the Middle East and Africa. Their members include angel networks, early stage venture capital and seed funds, electronic funding platforms, individual angels, crowdfunding platforms and accelerators.

Launch Tennessee
Launch Tennessee, (LaunchTN) is a public-private partnership focused on supporting the development of high-growth companies in Tennessee. Their objective is to make Tennessee the No. 1 place in the Southeast to start and grow a business. LaunchTN is funded in part under an agreement with the State of Tennessee.

National Angel Capital Association
National Angel Capital Association, (ACO) was established as a non-profit in 2002 to promote and support the creation of a vibrant Angel community in Canada. The ACO provides Angel investors with a secure environment to network and collaborate.

ACO has more than 2,000 members across Canada. Their members are a diverse group of individual investors, Angel groups, and other industry partners that provide support to early-stage companies.

Pipeline Fellowship
Pipeline Fellowship is an angel investing bootcamp for women which works to increase the diversity in the U.S. angel investing community and create capital for female social entrepreneurs. Launched in NYC in April of 2011, the Pipeline Fellowship has expanded from NYC to Atlanta, Austin, Boston, Chicago, Los Angeles, Miami, San Francisco, Seattle, and Washington, D.C.

Wisconsin Angel Network
The Wisconsin Angel Network (WAN) fuels the growth of capital in Wisconsin by operating as an umbrella organization providing services and resources to the early stage investing and entrepreneurial communities. It is part of the Wisconsin Technology Council’s overall economic development and job creation efforts. WAN is a Wisconsin public-private initiative operated by the Technology Council.

Several of these Angel Funds and Networks are spotlighted on our FundingSage Startup Investor Spotlight. Learn more about potential Angel and VC investors there!

Angel Funds and Networks

10x Ventures

37 Angels

3C Capital (RAIN FUND NETWORK)

460 Angels

Acorn Angels

Active Angels

Advising Angels

Aggie Angels Network

AIM – Auburn Angel Network

AIM – Central Alabama (Birmingham) Angel Network

AIM – Central Gulf Coast Investor Network

AIM – Gulf Coast Angel Network

AIM – Shoals Angel Network

Akron ARCH Angels (Akron Regional Change Angels)

Alliance of Angels

Amplifier Capital

Angel Capital Group

Angel Investment Forum

Angel Investor Forum

Angel Venture Forum

Angels Corner

Angels’ Forum

Angels of Southwest Louisiana

Angels on the Water

Angelvision Investors LLC

Anges Quebec

ARC Angel Fund

ArcView Angel Network

Ariel Southeast Angel Partners

Arizona Tech Investos

Astia Angels – NYC

Astia Angels – San Francisco

Atlanta Technology Angels

Baltimore Angels

Band of Angels

Baylor Angel Network

BC Angel Forum

Beacon Angels

BELLE Capital

BELLE Michigan LP

Bellingham Angel Investors BAI)

Ben Franklin Central / North Angels

Billiken Angels

Biltmore Angel Group

Bit Angels

Blu Venture Investors

Blue Water Angels

Bluegrass Angels

Bluestem Ventures

BlueTree Allied Angels

Boise Angel Alliance

Boston Harbor Angels

Boynton Angels

Brightspark

Brightstar Wisconson Foundation

Broadway Angels

Buffalo Angel Network

Capital Community Angels

Catalyst Fund, LLC

Centennial Investors

Central Florida Technology Ventures

Central Illinois Angels

Central Texas Angel Network

CEO Ventures

Charleston Angel Partners

Chattanooga Renaissance Fund

Chemical Angel Network

Cherrystone Angel Group

Clean Energy Venture Group

Coachella Valley Angels

Common Angels

Core Network

Cornerstone Angels

Cowtown Angels

Crossroads Venture Group

CTEK Angels

Delaware Crossing Investor Group

Desert Angels

Dingman Center Angels

East Central Ohio Tech Angels

Eastern New York Angels

eCoast Angels

ECS Angels

Element 8 Angels – (Formerly Northwest Energy Angels)

Empire Angels

Enterprise Angel Group LLC

Excelerate Health Ventures

Executive Forum Angels

Family Media Angels

First Angel Network

First Angels

Florida Angel Investors

Florida Angel Nexus

Fort Point Angels

Frontier Angel Fund

FSI Angel Network

Full Stack

Georgia Angel Network

Go Beyond Network

Golden Angels Investors

Golden Seeds LLC

Golden Triangle Angel Network

Gopher Angels

Grand Angels

Granite State Angels

Great Lakes Angels

Hawaii Angels

Hulumni Angels

HealthTech Capital

Heartland Angels

Hivers and Strivers

Houston Angel Network

Hub Angels

Hyde Park Angel Network

iGan Partners

Ignition Point Capital Group

Impact Angel Group

Inception Micro Angel Fund

Innovation Works

Investors Circle

Irish Angels

Jumpstart New Jersey Angel Network

K Street Capital

Kiretsu Forum

Lancaster Angel Group

Landmark Angels

LaunchBox Digital

Launchpad Venture Group

Life Science Angels

Long Island Angel Network

Louisiana Angel Network

Louisville Enterprise Angels

Main Street Venture Fund

Maine Angels

Maple Leaf Angels

Marquette University Golden Angels

Mass Medical Angels

Maverick Angels

Maximize Angel Investments

Merced Angels

Michigan Angel Fund

Mid Atlantic Angel Network

Mid-America Angels

Mid-Atlantic Bio Angels

Midwest Venture Alliance

Mississippi Angel Network

Myeloma Angels

Nashville Capital Network

NCIC Capital Fund

Nebraska Angels

New Dominion Angels

New Mexico Angels Inc

New Richmond Ventures

New World Angels

New York Angels

Newfoundland& Labador Angel Network

NJIT Highlander Angel Network

NO/LA Angel Network

North Bay Angels

North Coast Angel Fund

North Country Angles

North Dallas Investment Group

North Texas Angel Network

Northeast Angels

Northern Michigan Angels

Northern Ontario Angels

NueCura

Ocean State Angels

Ohio TechAngels

Oregon Angel Fund

P3 Alliance (Purdue Angel Network)

Pasadena Angels

Phenomenelle Angels

Piedmont Angel Network

Pine to Prairie Fund

Pipeline Fellowship

Pittsburgh Equity Partners

Plains Angels

Point Positive Inc

Puget Sound Venture Club

Queen City Angels

RAIN Source Capital

REES Capital LLC

RevUp by Betaspring

River Valley Investors

Robin Hood Ventures

Rochester Angel Network

Rockies Venture Club

RTP Capital Associates

Sacramento Angels

SAGE – Shasta Angel Group for Entrepreneurs

Salt Lake Life Science Angels

San Joaquin Angels

Sand Hill Angels

Sand Hill Angels LLC

Saskatchewan Capital Network

Seed Capital Fund of CNY

Seedstep Angels

Seraph Capital Forum

SF Angels

Show Me Angels

SideCar Angels

Sierra Angels

Silicon Pastures

SLO Seed Ventures

SNK Investments

SoundBoard Angel Fund

South Coast Angel Fund

Southwest Angel Network

Southern Willamette Angel Network

Southwestern Ontario Angel Group

Space Angels Network

St Louis Arch Angels

Stanislaus-Merced Angels

Stateline Angels

Sustainable Local Food Investment Group

Tacoma Angel Network

Tamiami Angel Fund

Tech Coast Angels

Technology Concept Fund, LLC

Texoma Angels

The Angel Food Network

The Angel Roundtable

The ArcView Angel Network

The JumpFund

Third Coast Angels

Thunderbird Angel Network

TiE Angels – Boston

TiE Angels – Silicon Valley

Topstone Angels

Triangle Angel Partners

Tribe of Angels

Tribeca Angels

Tri-State Private Investors Network

TriState Ventures

Twin Cities Angels

Tyler Texas Angel Network

Upstate Carolina Angel Network

Urbana-Champaign Angel Network

US Angel Investors

Utah Angels

Valley Angel Investment Fund

Vancouver Angel Technology Network

Vegas Valley Angels

Virginia Active Angel Network

VisionTech Angels

Walnut Venture Associates

WBTangels

West Suburban Angels

West Texas Angel Network

West Virginia Angel Network

Wilmington Investor Network

WINGS – The Medical Technology Angel Group

Wisconsin Investment Partners

Wisconsin Super Angel Fund

Women’s Capital Connection

X-Squared Angels

York Angel Investors

ZINO Society

Corporate venture capital (CVC)

This is venture capital funding provided by major corporations to startup companies with a high potential for growth.

Funding is typically sourced through the capital budget of the corporation, as compared to that sourced from investors in the case of the independent venture capital fund. These corporate venture capital arms either invest in ventures that have some level of strategic synergies with their company’s business or they invest because of financial objectives.

The latter may make sense for privately held companies, but many would argue that financial returns should not be the objective of the publicly traded company. This is because, in theory, the public company investors’ interest is in the firm’s core business, and not necessarily in riskier venture investing. Should they be, they would likely be better served to invest directly through a venture capital fund or other private equity vehicles which is focused on such investments.

CVC bring administrative support, infrastructure, management and marketing expertise, and technology to the venture.

Like angel groups and venture capital funds, corporate venture capital arms invest in startups in all stages of development, from seed to the expansion, growth and mezzanine levels. Generally, their desired liquidation event is not an IPO. As indicated above, they tend more toward the acquisition of the startup.

FundingSage’s Listing of CVC Funds

Several of these CVC Funds are spotlighted on our FundingSage Startup Investor Spotlight. Learn more about potential CVC investors there!

301 Inc. (General Mills Venture Arm)

Abbvie Biotech Ventures

Airbus Ventures

Alexandria Venture Investments

Amgen Ventures

Ascension Health Ventures

Astellas Venture Management

AXA Strategic Ventures

Baidu Capital

BASF Venture Capital America, Inc.

Bertelsmann Digital Media Investments

BlueCross BlueShield Venture Partners

BMW i Ventures

Boehringer Ingelheim Ventures

capitalG

Chevron Technology Ventures

CISCO

Comcast Ventures

ConocoPhillips Technology Ventures

Danone Ventures

Dow Ventures

DSM Venturing B.V.

eighteen94 Capital (Kellogg’s VC Fund)

Fosun RZ Capital

GE Ventures

GM Ventures

GV (Google Ventures)

IBM Venture Capital

InMotion Ventures (England)

Intel Capital

Johnson & Johnson Development Corp

Juniper Networks Ventures

Kaiser Permanente Ventures

Kearny Venture Partners

Legend Capital

Lenovo Capital & Incubator Group

Lilly Ventures

Media Tek Ventures

Medtronic Venture Capital

Merck Global Health Innovation Fund, LLC

Merck Ventures

Merieux Developpement

M12 (Microsoft Corporation)

Mitsubishi UFJ Capital

Motorola Solutions Venture Capital

MP Healthcare Venture Management

Nike Innovation + Fuel Lab

Novartis Venture Funds (Switzerland)

Novo Ventures

NTT DoCoMo Capital

NVIDIA GPU Ventures

Olympus

Pfizer Venture Investments

Proctor and Gamble Ventures

Qualcomm Ventures

Quintiles Transnational Corp (NovaQuest Capital Management)

Rakuten Ventures (Japan)

Robert Bosch Venture Capital

Roche Venture Fund

S.R. One, Limited (GSK)

SAIC Capital

Salesforce

Samsung Venture Investment

Sanofi Genzyme BioVentures

Sapphire Ventures

Shell Technology Ventures

Sony Innovation Fund

Swisscom Ventures (Cloud Innovation Lab)

Synchrony Financial

Takeda Research investment

Tate & Lyle Ventures

Telstra Ventures (Australia)

Tengelmann Ventures

Third Point Ventures

Toyota AI Ventures

T-Venture Holding

Unilever Technology Ventures

UPS Strategic Enterprise Fund

Verizon Ventures

Volvo Venture Capital

ZX Ventures (AB Inbev Venture Group) (backed by Anheuser-Busch InBev)

Venture Capital is a type of private equity capital in which concept, seed, early, growth (Series A), and mezzanine funding are provided to ventures to support their growth, development, and expansion, in exchange for equity. Earlier round financing is less common and convertible debt is utilized; however, preferred equity is the typical form of investment in the later Series A rounds, which are much more common to the VC. VCs want to generate a return through a future liquidation event, such as a sale to a strategic player or an IPO.

Venture capital firms source their funds for investment from high net worth individuals through professionally managed funds, then invest the funds in return for an annual management fee and carried interest on the profits of the fund.

Background Information

An individual who provides financial capital for venture investment, as well as managerial and/or technical expertise, is generally referred to as a venture capitalist. These resources are usually invested through a pooled investment vehicle such as an LLC or LP and invest primarily in highly risky but scalable seed, early and growth stage ventures. These funds are professionally managed by venture capital firms. The firms may employ managerial and technical experts with business and industry experience.

FundingSage’s Listing of VC Funds:

Several of these VC Funds are spotlighted on our FundingSage Startup Investor Spotlight. Learn more about potential VC investors there!

.406 Ventures

180 Degree Capital Group

3i US Growth Capital

5AM Ventures

Accel

Accomplice VC

Accuitive Medical Ventures

Actua Corporation

Adams Capital Management

Advanced Technology Ventures

Advantage Capital Partners

Alta Partners

Andreesen Horowitz

Angel Street Capital

ARCH Venture Partners

Astellas Venture Mangaement

Atlas Ventures

August Capital

Aurora Funds

Austin Ventures

Avalon Ventures

Azure Capital Partners

Bain Capital Ventures

Backstage Capital

Battery Ventures

Ben Franklin Technology Partners

Benchmark Capital

Beringea LLC

Bessemer Venture Partners

BioVentures Investors

Canaan Partners

Canvas Venture Fund

Cardinal Venture Capital

Carlyle Group

Centennial Ventures

Charles River Ventures

Chrysalis Ventures

Clarus Ventures

Columbia Capital

Columbus Nova Technology Partners

Connecticut Innovations

Crosslink Capital

DAG Ventures

Data Collective

Domain Associates

Draper Fisher Jurvetson

Elevation Partners

Essex Woodlands

Floodgate

Flybridge Capital Partners

Flywheel Ventures

F-Prime Capital Partners

Focus Ventures

Foundation Capital

Founders Fund

Fortress Capital Finance

Frazier Healthcare

GE Ventures

General Catalyst Partners

GGV Capital

Globespan Capital Partners

Granite Ventures

Greylock Partners

Hercules Technology Growth Capital, Inc

Highland Capital Partners

Illinois Ventures

Index Venture Management Inc.

Insight Ventures Partners

Institutional Venture Partners

Intellectual Ventures

JMI Equity

Khosla Ventures

Kleiner, Perkins, Caufield, Byer

Labrador Ventures

Lightspeed Venture Partners

Lux Capital

Maryland Technology Development Corporation

Matrix Partners

Maveron

Mayfield Fund

Menlo Ventures

Meritech Capital Partners

Mohr Davidow Ventures

New Enterprise Associates

Northbridge Venture Partners

Norwest Ventures Partners

Oak Investment Partners

OpenView Venture Partners

OriMed

Partners Innovation Fund

Point Judith Capital

Polaris Venture Partners

Radius Ventures

Redpoint Ventures

Rocket Ventures

RRE Ventures

Sapphire Ventures

Scale Venture Partners

Sequoia Capital

Sevin Rosen Funds

Sigma Partners Boston

Silver Lake

Slow Ventures

Sofinnova Ventures

Spark Capital

StarVest Partners, L.P.

Struck Capital

Sutter Hill Ventures

SV Angel

SV Life Sciences

Technology Crossover Ventures

Tenaya Capital

The D. E. Shaw Grou

Trident Capital

Uncork Capital

Union Square Ventures

Unusual Ventures

VantagePoint Venture Partners

Venrock

Venvelo

Versant Ventures

Watson Fund

Wave Capital

The objectives of venture capital firms vary significantly as do their approaches. As noted above some may invest with financial goals in mind while others invest for strategic purposes. A recent phenom is the creation of firms with a societal focus. Venture capital firms may focus on startup companies in different stages of development or from different industries. Some may operate locally only while others operate regionally, nationally or globally. Some may invest only in disruptive concepts while others invest in existing established companies which simply need support to grow.

They invest in differing business models with differing growth curves, trajectories, and capital intensity. It’s very important that the entrepreneur fully understand the objectives and approach of the venture capital firm in order to utilize their time and resources as efficiently as possible.