The way startups raise money is changing, fast. Angels, super angels and VCs have to figure out the new rules, but that's good -- really good -- for founders themselves.
By JS Cournoyer, contributor
I have been reading about the changing landscape of how technology companies get their initial outside funding after friends and family have chipped in. Seed or early stage investing, as it is referred to by entrepreneurs, angels, VCs and their investors (limited partners) is a critical part of the technology innovation and funding ecosystem because it has historically been the only consistent source of returns for the industry. This is where angels and VCs make their money and why so much has been written about the subject over the past 6 months.Paul Kedrosky started the discussion with "The Coming Super-Seed Crash" in which he argued that a crash was inevitable as a result of too many companies getting funded by too many angels and third string VCs at skyrocketing valuations.
Entrepreneur, angel investor and blogger Chris Dixon picked it up and wrote an interesting post about how the changes were caused mostly by entrepreneurs getting smarter about raising money, which I believe is part the reason. Successful venture capitalists and bloggers Fred Wilson, Mark Susterand Brad Feld felt compelled to chime in and describe their approach to seed investing and their thoughts on the evolving funding landscape. Dave McClure, the most outspoken of the angels wrote this now infamous post "Moneyball for Startups" in which he called traditional VCs dinosaurs and on the way to extinction and talked about how investors had to innovate to remain relevant. Angels and VCs even publicly discussed the evolution of deal terms and the pros and cons of straight equity versus convertible debentures at the seed level. As you can read my post "Equity vs Convertible Debt: What's best for Entrepreneurs", I believe equity is the way to go for investors and entrepreneurs alike because it aligns the interest on both sides. More
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