The announcement by Charles River Ventures will no doubt spur other VC’s to recognize a critical gap and trend in the financing of startups.
- VC’s have gone to much later stage investing as a whole
- Startups need less capital to get to product stage
- Angels were wiped out in the post-bubble market and but have been active in the Web 2.0 space, funding very capital efficient and highly successful software startups.
The CRV announcement creates a separate pool of capital that they do not have to value and price, thereby allowing them to use convertible debt — a very typical angel funding mechanism — that is then priced on the A round.
Entrepreneurs avoid heavy dilution and avoid wasting unnecessary time managing many smaller investors. Everyone gets to see how the company progresses in order to value the company more realistically.
I think we will see many more VC’s entertain or embark on this model in order to stay competitive and get in earlier on the good deals.