Since in articles about startups, venture investments and venture investors I regularly come across references to various stages of startup development, and I don’t want to explain what I mean every time, I decided to present them in a separate article and provide them with a brief description:

PRE - STARTUP stage

- Pre-seed stage

- Seed stage

Prototype

Working prototype

Alpha version of a project or product (alpha)

Closed beta version of a project or product (private beta)

Public beta version of a project or product (public beta)

LAUNCHING A PROJECT into operation or a product into production

- Startup stage

Launch, or early startup stage

Working with first clients, or late startup stage

POST STARTUP stage

- Growth stage

- Expansion stage

- Exit stage

Pre-IPO stage (when exiting through an IPO - Initial Public Offering, or the company’s initial placement of its shares on the stock exchange)

IPO (when entering an IPO)

A startup does not always go through all stages; it happens that it “jumps” some stages, but, in my opinion, such a detailed classification is much better than a simplified one, since it gives a clear idea of ​​how a startup is developing. Now let's give a brief description of each stage:

Pre-startup stage: the name of the period of time from the moment of the idea to the launch of the project into operation or the product into production;

Pre-seed stage: the stage when there is an idea of ​​what the market and consumers need, but there is not yet a clear idea of ​​how it should be implemented technically (technical specifications) and how it should be developed so that it makes a profit (business plan), or there is, but in in the most general form;

Seed stage: stage of market research, drawing up and implementing technical specifications, drawing up a business plan, testing the created project or product, preparing for the launch of the project, negotiations with the first potential clients;

Prototype: creation of technical specifications and interface design. You can read more about this on Yuri Vetrov’s blog;

Working prototype: creating a project or product with the most general functionality;

Alpha version of a project or product: a project or product has been created, but not yet tested; in the process of testing and usability testing, some little things are added to the interface that were not thought of at the stage of drawing up technical specifications and interface design; negotiations begin with the first potential clients;

Closed beta version of a project or product: the project or product is already in a form close to how the startup founders see it, the project has its first few users who are invited by the startup founders to try the service and report what they are missing or about the bugs they encountered;

Public beta version of a project or product: begins to attract users who have realized their need for the services offered by your project, or the most curious, users who are constantly looking for something new, often through invitation systems, limiting the number of users to a certain number (for example, 500 , or 5,000), full contracts are signed with the first clients;

Launching a project into full operation or a product into production: the name speaks for itself;

Startup stage: the most critical stage for each startup is the stage of launching the project (early startup stage) and the very initial period of its work (late startup stage);

Growth stage: the stage when the start-up’s position in the primary target market (i.e. in the market from which it intended to start working, and which it described in its business plan) is already stable, and the start-up is confidently moving towards gaining the share in this market that he outlined in his business plan;

Expansion stage: the stage when a startup has completed or is very close to executing its business plan in its primary target market, and is expanding its business through expansion into other markets. Business expansion can occur either independently or through the purchase of other players;

Exit stage: By exit, we primarily mean the exit from business (in whole or in part) of venture investors who invested in the startup at previous stages. An exit can occur through the sale of the company to strategic investors, through an IPO (that is, the initial sale of company shares on the stock exchange) and through a private placement (the sale of company shares to private equity funds). Venture funds invest only in fast-growing young businesses, and, as a rule, by the exit stage, the growth of the company's business slows down compared to previous stages, although the business itself becomes more stable. There is, however, another option for the “exit” of both investors and founders from the startup - this is the bankruptcy of the company and termination of the business, but I hope that none of you will have such an “exit”.

2.2. Venture Capital Basics
2.3. The language of venture capital
2.4. Financing of various stages of development of a venture company
2.5. Financing the early stages of development of venture capital companies
2.6. Income generation for investors and EXIT strategies

2.1. Selecting the type of financing: debt or equity

Types of Venture Funding

Venture capital funding packages can come in different types.

The three main ones are:

1. Regular shares.
2. Preference shares.
3. Credit.

Loan or venture capital

Remember- you need both. Don't try to replace one with the other. Use each component for its intended purpose:

1. Venture capital should be used in early rounds to fund research and development to create a product. In subsequent rounds - for the purchase of securities, marketing and accelerating growth rates.

2. The loan should be used to create working capital and build infrastructure.

Credit usually follows venture capital. Credit is cheaper than venture capital.

Take it into account that venture investors expose their money to greater risk and can therefore expect higher returns on investment.

Know- the sooner you establish connections with banks, the better. This will increase the confidence of potential investors in you and help create favorable conditions for obtaining loans in the future.

You need both. Don't try to replace one with the other.

Which banking services to use at different stages of your business development

1. Seed stage: deposit accounts.
2. Series A Financing: Equipment Leasing Financing/Cash Management/Investment.
3. Further funding: provision of working capital, financing the purchase of equipment, cash management, investments, letters of credit. (Source: Silicon Valley Bank).

Calculation of financing over time

Bear in mind- The most popular strategy is staged financing. This is the process of determining the time frame for each stage of financing, which correlates with the implementation of a significant point in the overall plan for building your business.

Characteristics of venture capital:

• Funding is provided to new or existing firms with potential.
• Provided venture enterprises And enterprises creating new niches in the market because they do not have the collateral, history or income to qualify for a loan.
• Managers' experience— the main criterion when assessing the prospects for the likelihood of obtaining financing.
• The entrepreneur transfers some part of the property and control over the business to the investor.
• Investments requiring high returns are structured so that return on them was carried out within 3-7 years.
• Becoming liquid- through an IPO, sale of a business, etc. - the company switches to other sources of financing.
• Venture capitalists expect to receive 20-50% annual profit on their investments by the time the company is liquid.
• Typical size investments from $500,000 to $5 million.

2.2 Venture Capital Basics

Venture capital is capital invested by investors in a risky venture in the early stages of its development.

Choose the best of the best

The most important thing you must do is find a real professional in the field of raising funds and establishing useful contacts. Your management team needs to interview at least five candidates, select the best one, and then carefully vet their business acumen and trustworthiness. You need someone with good connections in your industry and experience in attracting investment in companies like yours. When investors want to meet you and your team in person, the involvement of a well-chosen intermediary will help make a successful presentation of your company and achieve your goal.

Time frame

Remember that vital to success in your business is the recognition that seeking and raising capital is an ongoing process as your company grows and develops. The end of one funding round is the beginning of the next. It will take at least six months to raise funds for the first round of funding. For the next one - from three months to six months.

1. Learn to sell face-to-face, one-on-one, not only your product or service, but also your business vision.

2. Buy a financial calculation program and become an expert in all aspects of start-up financing. Failure to understand financing issues can significantly reduce your chances of receiving investment.

3. Assemble a highly professional team. Create your own network of sales, financing, management.

4. Learn to make impressive, persuasive presentations to challenging, critical audiences.

5. Learn to check the reliability of those sources that “look too good to be true.”

2.3. The language of venture capital

• Seed capital
• Start-up stage enterprise
• First, second, third round, mezzanine financing
• Private placement of securities
• "Dilution"
• Careful Study
• Justification of the viability of the project
• Share in business
• "Sweat share" (relative value of the entrepreneur's intangible contribution)

Your goal is to find funding. Remember, it is much easier to gain the trust of potential investors if you speak to them in their language or at least understand it well. Many entrepreneurs are sometimes surprised to learn that the expression “venture capital” does not mean financing in the usual sense of the word. This term is used to define a specific type of financing with special conditions and rules. Below are examples of terms used in the venture capital business.

Seed capital(Seed Capital) is a source of financing for businesses at the start-up or early growth stages, where the product or service being produced is in the concept or development phase.

Start-up stage enterprise(Startup Business) - is calculated from the creation of an enterprise to the start of operating activities and receipt of the first profit.

Private placement of securities(Private Placement) - placement of newly issued securities (shares, etc.); offering a limited partnership to a specific, narrow group of investors (usually 35 people or less) on a “personal” basis.

"Dilution"(Dilution) - a decrease in the percentage of ownership in a company, which occurs: due to the sale of additionally issued shares on the securities market; the difference in price paid by investors in a private placement versus a government-financed placement.

Careful Study(Due Diligence) - the process of preliminary thorough review by venture capital firms and other investors of all aspects of the company applying for financing.

Justification of the viability of the project(Feasibility Study) - a study of the potential capabilities of an enterprise for running a successful business.

Share in business(Equity Stake) - ownership of a certain part of the company's shares, provided to the investor as compensation or additional compensation for various services: consultations, assistance in management, arranging financing, etc.

"Share of Sweat"(Sweat Equity) - a system for assessing the intangible contribution (time, effort) of an entrepreneur to an enterprise.

2.4. Financing of various stages of development of a venture company

Pre-sowing stage. A relatively small amount of money is provided to the inventor or entrepreneur to justify his concept of the potential profitability of a business that is under development. At this stage, product development itself receives funding (as opposed to “pure” research), while marketing research is rarely funded.

Sowing stage. Funding is provided to newly formed companies to complete product development and conduct initial market research. These companies may be in the process of formation or have been operating for a short time. In both cases, the product does not yet have access to the market. As a rule, at this stage of its development, the company has: a key management team, a prepared business plan, and initial marketing research conducted.

First stage (Early). Funding is available to companies that have exhausted their initial capital and need another round of financing to begin commercial production and sales.

Second stage. Working capital is provided to expand a company that already produces and sells products and needs funds to support growing bills and inventory. Although the fact of the company's progress is obvious, there is no talk of profit yet.

Typically, these companies have already assembled a core management team, prepared an initial business plan, and conducted at least some initial market research.

Third stage. The funding is being provided for the significant expansion of the company, which has been steadily increasing sales and is already turning a profit. Cash is used for further expansion of production, marketing, replenishment of working capital or for the development of an improved product, the introduction of new technologies or to increase the range.

Interim financing (Late stage or Expansion stage). The company is in a maturity phase, is generating profits, continues to strive for expansion and is preparing to become “public” within the next 6-12 months, i.e., to issue its shares on the stock market for the first time. Often, bridge financing is arranged so that the invested funds can be returned through an initial public offering (IPO). Mechanisms may also be used to restructure major shareholding positions through secondary transactions. This is done when “early” investors want to sell part of their shares or completely exit the project. Bridge financing is also used when there is a change in the management of a company, so that a majority stake is purchased before the company issues its shares to the market.

Main sources of financing for venture capital firms

2.5. Financing the early stages of development of venture capital companies

Early stage financing is the provision of initial capital to an entrepreneur whose business is at the idea level. Therefore, the funds raised are used for product development and primary marketing. Once the engine is in motion - market research is underway, product development is underway, a key management team is in place, the next round of financing can be implemented to hire qualified managers, purchase additional equipment and begin a serious marketing campaign.

Financing provided at the early stages of a company's development enables the latter to begin mass production of the product and enter the market with it.

Venture capital funds providing seed capital

Venture capital funds that provide seed capital invest in companies that are in the early stages of their development. Investors know that only 20% of invested companies will survive to the next round of funding. The second round is carried out by another investment fund or syndicate of funds, which takes control of the process. To compensate for the high risk, the Seed Capital Fund always requires a very high percentage of its participation in the company, conducts financing in several rounds, and also appoints the directors and employees of the firm at its own discretion.

Financing a company undergoing expansion

The first round of financing allows a company in the expansion stage to begin full-scale production of a product, organize sales and enter the market.

The second round allows a company that is already selling its product to hire an additional number of new employees - marketing specialists, sales specialists, engineers. Because many expansion stage companies are not yet fully profitable, they often use a capital injection to cover negative cash flow.

The third round or mezzanine financing allows for a significant expansion of the company, including increasing production space, conducting additional marketing research, and developing a new product. At this stage, the company is breaking even or is already making a profit.

Initial public offering (IPO)

An initial public offering of a company's shares on the stock exchange is the final stage in the development of a successful venture capital firm. When a venture company places its shares on the stock exchange - it becomes “public”, it receives all the profit on the investments previously made in the project.

2.6. Income generation for investors and EXIT strategies

“EXIT” routes for venture investors from the project and distribution of the resulting profit

Traditional ways for investors to generate income:

Dividends

At a certain time after receiving financing, the company pays dividends to investors. Dividends are usually distributed among investors in proportion to the invested capital. The amount of dividends is usually determined by the company's Board of Directors, but subject to a limit on the amount.

Exit of the investor from the project according to a pre-approved schedule

At a certain time after the company receives financing, investors have the right to return the invested funds by selling their shares to their original owner, but in such an amount that the company has enough cash. In the case when several investors want to exit the project at once, this is done in proportion to the invested capital and in accordance with a pre-approved schedule.

Redemption of a controlling stake in an enterprise from investors according to a pre-approved schedule

At a certain time after receiving an investment, the company has the right to buy back, at a predetermined price, the company's shares held by the investor. The redemption is carried out according to a pre-approved schedule.

Merger, acquisition, initial public offering of shares on the stock exchange

In the event of a merger, acquisition or IPO, it is impossible to predict what the investor's return will be. It is understood that any of these actions will be taken in the best interests of the shareholders.

Convertible loan

An alternative to direct investment is a loan issued by the investor. In this case, the loan interest is determined with regular payments at a set time throughout the entire term of the loan. The investor has the opportunity to exchange the loan for interest within a predetermined period of time (usually significantly less than the life of the loan).

Chapter 3. Criteria for selecting projects by venture investors

3.2. Business angels
3.3. Benefits of business angels
3.4. Business angel syndicates
3.5. Examples of deals with business angels and recommendations for finding business angels
3.6. Types of business angels and their participation in company development
3.7. Venture capital firms
3.8. Finding and selecting suitable venture investors
3.9. Corporate investors
3.10. Banks

Venture investors

3.1. Business angels and venture capital firms

Business angels

In the world of modern business, there is as much variety in private investors as there are entrepreneurs. They vary in their level of industry expertise, business experience and, most importantly, their ability to work effectively with your company. Successful private investors, such as business angels, make investment decisions based on four basic criteria: management, market, product and funding opportunity. They evaluate each criterion in terms of reducing their risk and increasing their profit.

1. Business angels provide guarantees for investments and loans.
2. Business angels usually invest together with 2-3 other investors.
3. Business angels bring more than money to a project; they often make up for the lack of management skills of aspiring entrepreneurs.
4. Business angels do not seek to gain control of a company.
5. Business angels want to receive common shares with voting rights or partner status.
6. Business angels want to see a return on their investment in 3-4 years.

Venture capital firms

Venture capital professionals are risk management specialists. They conduct a qualified assessment of all aspects of the company they finance. They have good connections in banks, brokerage firms, lawyers, auditors and other persons whose cooperation will lead your company to success.

1. Venture capital firms are typically private companies or corporations that invest heavily in the development of young, promising, fast-growing and rapidly changing businesses.
2. They provide large amounts of long-term risk capital. Their goal is to increase the capitalization of invested companies, and not to receive interest payments.

The venture capital firm expects to make a tangible return on its investment. Remember, if you fail to fulfill your obligations by a certain date, investors will not hesitate to insist on liquidation or sale of your company. Inform them about everything in a timely manner and involve them in business!

Always keep looking for the next round of funding. Take advantage of every opportunity to merge with or acquire new companies, thereby increasing the value of your company's shares. All this will ensure you victory in the competition.

Venture investors
Business angels

3.2. Business angels

Business angels are private investors, often with extensive entrepreneurial experience, who invest some of their own money in small venture firms.

Angel investors are the oldest, largest, most frequently used, and most important external source of external finance for young entrepreneurial firms.

• Main factors motivating business angels to invest
• Expectation of big financial profits
• Participation in the management of an entrepreneurial company
• Pleasure and satisfaction derived from participation in the entrepreneurial process
• Creating a job for yourself
• Sense of social responsibility

The specific role of business angels

Business angels are private investors, also called informal investors, who invest their own capital in newly created illiquid companies. These are wealthy people. In the past, many of them were successful entrepreneurs or top managers. They are called business angels because they come to the rescue of young innovative companies, helping in the formation of a business. “Angelic” help means not only finances, but also useful connections in the business world, business skills, and knowledge. It must be borne in mind that at the very early stage of a company’s development, no one else will be able to provide similar assistance on acceptable terms.

In one form or another, business angels are active all over the world in every country. Although business angels have some disadvantages, there are still many more advantages. An established market for informal venture capital is a necessary component of the development of a modern entrepreneurial economy.

Volumes of "angel" investments in venture firms

According to a recent study published in the Global Entrepreneurship Monitor (GEM) report, informal private investment in start-up firms has been many times higher than formal investment made by venture capital funds. Informal private investors financed 99.962% of all firms, their investment amounted to 91.8% of the total venture capital invested in young firms in GEM countries. In total, $364 billion was invested in 33,655,116 young firms. On average, in GEM countries, 3% of the population invested in someone else's business over the past three years. 43.7% of these investors reported that they invested in the family business of close relatives, 29.2% in the firms of friends, 8.9% in the firms of work colleagues, and 9.3% in the firms of strangers.

In the United States, business angels invest on average about $45 billion in 50,000 young companies annually. In total, there are about half a million active business angels in the United States. In the European Union, according to official estimates, there are about a million potential business angels ready to invest from 10 to 20 billion euros. On average, the number of young firms that received investment from business angels is 30-40 times higher than the number of firms that received investment from venture funds.

3.3. Benefits of business angels

Business angels fill the funding gap by investing in areas that are not attractive to other investors.

Disadvantages and advantages of business angels

• Business angels prefer to finance venture capital firms at the earliest stages of their development. Business angels are the main source of external financial resources for newly created companies with high growth potential. Business angels are not afraid to finance high-tech innovative companies, despite the high risk of non-repayment of invested funds.
• Business angels provide small amounts of money necessary to “start” a newly created enterprise. They fill the funding gap by investing in areas that are not attractive to other investors.
• Business angels invest in almost all industries. Regardless of industry, business angels are attracted to companies with high growth potential.
• When making financial decisions, business angels are more flexible than venture capital firms. They have a different approach to investment issues: investment horizons are further away (“patient money”), the procedures for allocating funds are significantly simplified, and the rates of return are much lower.
• Taking out a loan from business angels does not involve such large interest payments as other investors.
• Most business angels have extensive entrepreneurial experience, which they generously share to help a newly created company get on its feet. Free help and advice from an investor - a business professional - is invaluable for a beginning entrepreneur.
• The financial market for business angels is broader geographically than the market for formal investment funds. Business angels can be found everywhere.
• Investments by business angels act as leverage because a newly created firm that receives funding becomes more attractive to other investors. Private investments are increasing the interest of investment funds in such companies.
• Angel investors also provide loan guarantees to start-up companies in addition to the money they personally invest.

Typical angel investments (in the US)

• Early investment rounds
• Investment size from $100 thousand to $1 million.
• From 6 to 8 investors
• Co-investors are friends and associates who trust each other, who have previously invested jointly or know each other
• Angels provide seed and seed capital in early rounds - more than 80% of seed investments are made by angels
• Patient investors - invest early, for a longer period
• Local networks of investors (friends, partners, leading investors)
• Invest closer to home - within a radius of no more than half a day's drive
• Entrepreneurs who have left the business - “physical” participation is important
• Invest in markets and technologies they understand. Angels are investors with “added value” and “mentors of money”
• Required profit is often lower than that of venture capital funds
• Conditions are less formal (compared to venture funds)

3.4. Business angel syndicates

(Adapted from the publication “Business Angels”,
M.W. Osnabrugge and R.J. Robinson, 2000)

Over the past few years, the number of business angels who invest as part of an investment syndicate has increased significantly. This approach allows for larger and more frequent investments. Experienced investors prefer these types of investment groups. These groups, which sometimes have up to 100 members, organize their activities through forums. Such a group can be accessed through one or more members. To ensure the anonymity of membership, many syndicates (also called Business Angel Associations) avoid publicity. Business angel syndicates provide investors with the following benefits:

1. Possibility of pooling capital to finance large-scale projects.
2. Wide variety of investment projects.
3. Complementarity and mutual exchange of useful contacts, as well as the use of investment expertise (selection, preliminary study, thorough verification, monitoring).
4. Possibility of adding new investments to an existing portfolio.
5. Ability to add subsequent rounds to existing investments.

This approach allows them to collectively make larger and more frequent investments.

However, syndicate membership comes at a cost and may not suit those investors who want to always have the “final say” and therefore prefer to actively participate in the investment process themselves. Typically, one of the group members submits a project for consideration by the syndicate, and it is assumed that he himself will participate in its financing. The proposal is then evaluated by the group at a general meeting. Each group member makes an independent decision on refusal or participation in the investment project. Also, each investor has the right to determine the share of his participation. Once the decision is made, the participating angel investors begin making their investments according to a predetermined schedule. Compared to simpler syndicates, more complex and larger syndicates often seek opportunities to operate in larger, more profitable markets.

(Adapted from Business Angels,
M.V. Osnabrugge and R.J. Robinson)

Quite often, investors are presented with poor business plans, showing that entrepreneurs have not taken into account all possible business development scenarios.

1. Try to finance from personal funds for as long as possible and develop your company independently. Start raising funds from outside when the need for this becomes obvious and inevitable.
2. Carefully weigh all the pros and cons when attracting business angels to the project. Only after this start searching and negotiating with private investors.
3. When resorting to the help of a business angel, determine, at least approximately, how much money you need to receive and how many shares of your company you are willing to sell to him.
4. Try to learn as much as you can about business angels. Learn the principles of working with them. Decide what type of business angel is best suited to work with your company. Determine the degree of his participation in the activities of your company. For example, start-up companies that are in dire need of qualified specialists in the field of auditing and financing find a business angel who can provide not only money, but also qualified assistance in these matters.
5. Include the latest information, realistic financial projections, and potential valuations in your business plan. Quite often, investors are provided with “weak” business plans, showing the inability of the entrepreneur to take into account all possible scenarios for business development. Realistic financial forecasts demonstrate the competence and responsibility of the entrepreneur.
6. To find a business angel, use ten main sources: personal connections, professional connections, intensive searches, official investor selection services, business angel syndicates, investment fund clubs, Internet opportunities, financial brokers, mailing lists and publications, venture capital firms capital.
7. Learn to distinguish between types of investors. Don't accept the first offer, choose the best for your company. Conduct thorough due diligence on potential investors. The venture business is a two-way street. Having found a suitable investor, learn to defend your interests in the negotiation process.

3.6. Types of business angels and their participation in company development

Participation of business angels in a venture enterprise

Types of Business Angels

They are typically former successful entrepreneurs looking for a way to diversify their portfolio or expand their business.

Corporate business angels

This type of private investor uses to make investments the funds they receive as compensation upon dismissal from the position of a top manager of a large corporation. In the financed company, they also seek a management position, participate in one investment project, have approximately $1 million in cash, and invest up to $200 thousand.

Angel Entrepreneurs

These are the most active business angels. They invest the largest sums, usually $200-500 thousand. As a rule, they are successful entrepreneurs themselves and are looking for a way to diversify their investment portfolio or expand an existing business; they do not hold positions in the invested company.

Enthusiast Angels

They are less professional than angel entrepreneurs. Being at an advanced age, they consider investing more like a hobby. They invest small amounts (from 10 to several thousand dollars) in a number of companies and have little or no involvement in the management of their investments.

Micromanaging angels

These investors prefer to maintain tight control over their investments while sitting on the Board of Directors, although they are not involved in the day-to-day management of the company. They usually finance up to four companies at a time, adding weight to each.

Professional angels

Doctors, lawyers, auditors, and people of other professions act as investors. They prefer to invest in companies that offer a product or service related to their professional field. In this case, in addition to monetary funds, the investor also provides an expert assessment, although he does not actively participate in the company’s activities. As a rule, professional angels finance several projects at the same time, investing from 25 to 200 thousand dollars in each, and prefer to invest together with other angels.

Venture financing of high-tech businesses
Probability of success (American statistics)

• 6 out of 1,000 business plans submitted annually are funded by venture capitalists
• 10% of invested firms reach liquidity
• 60% of invested companies face bankruptcy
• 30% of invested companies are expected to merge with others or liquidate
• 6 out of 1,000,000 high-tech business ideas achieve success and go to IPO
• The 10% of successful venture capital firms compensate investors for the 90% of unsuccessful ones.

Venture capital firms

3.7. Venture capital firms

The fund's primary source of net income is capital gains from the sale or distribution of shares of the companies in which it invests.

Venture capital is investment in high-risk, high-return ventures. The organizational and legal structure of a venture fund is: a limited partnership agreement, a limited liability company or a limited liability partnership. Those who invest in the fund are called limited partners (LPs). Those who invest the accumulated funds of the fund in developing companies, i.e. venture capitalists, are called general partners (GPs).

Venture capital firms receive compensation for their investment and participation in the management of the venture company in two ways. First, it is an annual commission for participation in the management of the company, paid by the fund to the management company, which hires venture capitalists and other administrative and technical personnel to work for the fund. The annual fund management fee is 2.5% of the funds invested, but this is usually significantly less at the beginning and end of the funding when investment activity is low. Secondly, it is receiving compensation through the placement of the fund’s net profit. The main source of net income is capital gains through the sale or distribution of shares of investee companies. General partners typically receive 20% of net income, while limited partners receive 80%.

Probability of development success of venture capital firms that received funding

• On average, only 6 breakthrough high-tech business ideas out of a million turn into businesses, achieve success and go to IPO.
• Less than 20% of firms that receive venture capital funding become liquid.
• Poorly written business plans do not meet the selection criteria of venture capitalists. On average, venture capital firms fund 6 out of 1,000 challenger companies each year.
• 60% of high-tech firms that receive venture capital funding end their operations due to bankruptcy.
• 30% of venture capital firms end up merging with other firms or going out of business.
• 10% of venture capital firms succeed and thereby compensate for the losses from the 90% of firms that fail.

3.8. Finding and selecting suitable venture investors

Characteristics of venture funds most important for an entrepreneur

• Reputation of investing in successful firms
• Effective participation in the work of the Board of Directors
• Personal compatibility with company culture
• Assessing the company's capitalization
• Reputation for facilitating follow-on funding rounds
• Specialization in this area of ​​production
• Specialization at this stage of venture financing

Finding and selecting an investor for a venture enterprise at the earliest stage of its development is one of the most difficult and responsible tasks. Not all money is the same. “You can divorce your wife, but never divorce an investor!” - say venture capitalists. Keep this in mind and choose your investor carefully. Look for an investor who will not only invest money in your enterprise, but will also add “weight” to your company by providing his connections in the business world and personally participating in management.

To choose the investor who will bring the most benefit to your company, consider the following:

• whether the investor has experience working with similar projects, as well as projects in his investment portfolio that can compete with yours;
• what is the expected degree of investor participation in the management of your company;
• does your investor have strong connections with other investors and consultants that can be used in the future to expand the company and subsequent rounds of financing;
• can you build a trusting personal relationship with an investor?

The term “startup” appeared in the 70s to refer to companies with short operating cycles. The “dot-com boom” at the turn of the millennium provoked a rapid growth in the number of such companies, and at the beginning of the 21st century, “startup” became one of the most fashionable concepts associated with innovation and technical progress.

Despite the short economic cycles of startups, they all go through successive stages in their development - they are called startup stages. Most companies, however, cease to exist within a year—70% of them. Of the “survivors,” 40% will also close over the next year.

Stages of development that any startup goes through

Analysts talk about five stages of a startup, each of which can be broken down into smaller phases.

1. Pre-seed stage – the idea has not been tested, the potential audience and business model have not been outlined.
2. Seed stage - a business idea undergoes verification and verification of the correctness of the choice of business model with the help of marketing research and trial sales.
3. Launch stage – the company begins expansion into the mass market and develops marketing.
4. Growth stage – following the growth of sales, the number of employees increases and the structure of the enterprise is formed.
5. Exit stage - the startup is transformed into a classic company, the further development of which takes place according to other models.

An example of a successful startup going through stages

An example of a project that, after launch, radically changed its concept and purpose, conquering a huge niche in the market, is Instagram. At the seed and launch stages, this startup was called Burbn - its target audience was lovers of strong alcoholic drinks. After attracting the first users, the project’s authors noticed that subscribers most often simply post photos of bottles of drinks that they are currently drinking. Their next step was to develop a service for publishing photographs on the existing basis.

Pre-seed stage: birth of an idea

Let's look at the stages of a startup in detail. Any of them begins with the appearance of an idea in the head of a developer who suddenly realizes a new way to satisfy some human need. It could be something that no one has even thought about before.

Seed stage: searching for adherents

At this stage, the startuper shares his thoughts with one of his friends or colleagues, and subsequently attracts other interested parties. The initial team of enthusiasts is formed from them.

Polishing the idea

As developers communicate, an idea may undergo dramatic changes, but its target audience and market prospects become clearer.

We draw up a business plan

This stage of startup development consists of formalizing the information received using a business plan, which can already be presented to the investor. Developers set target parameters that the project should reach after a certain time. The development plan may change later, but the foundation must be laid.

Receiving investments

The next step is to attract an investor. Money for a new venture is given by a venture capitalist or simply a wealthy person interested in a profitable investment of capital, for example from among relatives.

A good way to find sources of funding would be to present a working prototype (or MVP - minimum viable product) to investors.

In the development process, there is a need to clearly distribute roles between developers, investors who are ready to participate in management, and hired managers - who is responsible for what and what direction they are involved in.

Having received funds, the team refines the product to perfection, making it suitable for mass implementation. This stage ends with beta testing.

Along with developing the product, developers hire people who are responsible for promoting the product. And if earlier work could be carried out at home, then communication with clients, suppliers and consumers already requires a full-fledged office.

Relationship with the market

At the stage of building relationships with the market, startup developers must understand how to promote the project and how to position it so as not to lose their market share. For these purposes, as a rule, experienced marketers are involved.

Clients: first buyer

The first customers that a startup manages to attract are an irreplaceable source of information and can tell how viable the initiative is and whether there is a need to fundamentally change the content and presentation of the product for wider implementation. At this stage, all modifications can still be made with relatively small financial investments.

When the product is fully tested and successfully launched on the market, the company needs new employees who were not involved in the development, but are able to promote the startup and subsequently work in a full-fledged company. The experience gained at earlier stages is transformed into corporate culture - a written and unwritten set of behavioral models both within the company and in interaction with clients, competitors and government agencies.

The concept of “corporate culture” includes:

• Leadership system;
• Stylistics of conflict resolution;
• Communication system;
• The place of a specific person in the organization;
• Standards for relations between the sexes and people of different nationalities;
• Symbolism: slogans, taboos in company, ritual actions.

Stages of growth and expansion

The project is starting to bring in the first money, and turnover is growing. Access to adjacent markets is possible.

Exit

This stage marks the transition of the startup to the category of “regular” business. At this stage, the investor who initially invested money and received the planned profit often withdraws funds, after which another, usually larger, capital is attracted.

When all stages are completed, its developers can remain in the company, or they can transfer it to other persons, taking up new projects.

Venture investment means the acquisition of share capital, authorized capital of new or growing companies, while the acquired share is less than a controlling stake. Invested funds are used primarily for business development, and not for buying out shares of existing shareholders (founders) of the company.

Business angels and seed funds

Business angels- these are private investors, wealthy individuals with extensive experience who, for various reasons, invest their free money and experience (“smart money”) in the business ideas of newcomers. The typical amount of investment in a startup is $50-300 thousand. You have to take into account a high level of risk, since there are not enough statistics on risks in new markets. In addition, due to limited funds, the investor cannot provide high diversification. Contracts with company founders are informal in many respects, making it difficult to control the business.

Business angels usually engage in many projects at the same time, since most of them will fail and only one of many will bring a profit that can recoup the remaining losses. Thus, one of the first investors in Google, Andy Bechtolsheim, is now a billionaire.

Business angels invest part of their own funds in innovative companies at the earliest stages of development - “seed” and initial (start-up), supporting their technical and commercial development. They don't lend money like a bank (debt financing), but provide money, connections, and expertise in exchange for an equity stake in the new company (equity financing).

Seed fund invests at the stage when the company only defines the concept of its business and creates prototypes of products or technologies. The first large seed investment fund in Russia plans to create RVC.

The maximum revenue of a company that can qualify for investment from RVC’s seed fund over the last four quarters should not exceed 25 million rubles, according to RVC. In addition, she must be under three years of age. Also, the expected conditions for the new fund will stipulate that the volume of the initial round of investment in the company is no more than 25 million rubles, and a certain number of its shares belong to the authors and developers of the new technology. Companies in which RVC is ready to invest must develop products or provide services from the list of critical technologies.

Stages of the life cycle of the investment recipient

Seedstage: the company has a concept, an idea for a product, but there is no finished product; work is underway on a prototype.

Start-up stage: the company has a pilot version of the product or the first version for demonstration; product testing is carried out.

Early stage: the company’s product is ready to enter the market, demand is being tested.

Expansion stage: The product has been accepted by the market and there is rapid growth in sales and demand.

Late stage: the company transforms into a large organization and shows signs of being a public company.

Venture funds

There are private, public-private and corporate funds (investing in the interests of the parent corporations). Here are some of them working in Russia:

Private foundations

Private-public funds

• Moscow Region Foundation managed by Troika Dialog
• Venture fund of Tatarstan managed by Troika Dialog
• VTB Venture Fund (together with RVC)

Corporate funds

• Oradell Capital - created by the founder and president of IBS holding Anatoly Karachinsky

Crowdinvesting (equity crowdfunding) and Crowdlending

Crowdinvesting or equity crowdfunding is an alternative financial tool for attracting capital to startups and small businesses from a wide range of micro-investors.

Crowdlending is lending by individuals to other individuals (P2P lending) or companies (P2B lending) through special Internet platforms.

• detailed article Crowdinvesting and Crowdlending

Standard requirements for venture investment applicants

Small enterprise in the scientific and technical field. Organizational form - LLC or CJSC.

The main activity is the implementation and commercialization of R&D results, inventions, improvements and innovations in the scientific and technical field.

Availability of a well-thought-out project implementation plan in the form of a formalized business plan.

Availability of intellectual property rights, patents, copyrights, or a real possibility of obtaining such rights to the results of scientific and technical activities.

Possibility of project implementation within no more than 6 years.

The readiness of the project initiators to partner with a venture fund, the fund’s participation in the equity capital of the enterprise (the fund acquires a controlling or blocking stake).

The financial efficiency of the project is at least 70% IRR (internal rate of return).

Venture investment market in Russia

Global venture investment market

2018

Venture investments in the payment solutions market jumped 5 times

In 2018, the volume of venture financing in the global payment solutions market reached $18.5 billion, increasing almost 5 times compared to 2017. such data was published on May 28, 2019 by the analytical company PitchBook.

While fintech-related companies are raising significantly more funds, the number of venture capital deals has fallen, from 258 in 2017 to 235 a year later.

The surge in investor activity in the field of online payments is associated with the Chinese company Ant Financial Services Group, which raised a record $14 billion in 2018.

From the beginning of 2019 to the end of May, 62 transactions (worth $2 billion) were registered for venture financing of startups whose business relates to payments and transfers via the Internet. In January, Stripe, which develops a service for paying employees and combating fraud, raised a total of $345 million and received a valuation of $22.5 billion.

The company GoCardless, which is creating a global network of interbank payments, received investments of $75 million, including from Alphabet and Salesforce, and the startup Klarna, which offers users of online stores to pay for goods after testing the product, closed a funding round of $100 million in 2019.

As noted by CNBC, more and more services and developers are appearing in the payments industry who want to make money on the fact that more and more people prefer to make purchases online and using contactless technologies. McKinsey analysts estimated the volume of this market at $1.9 trillion at the end of 2018.

CB Insights: 2,740 deals worth $53 billion

At the end of 2018, corporate venture structures financed 2,740 transactions, and the total amount of their investments approached $53 billion. Global corporate venture activity is growing rapidly, and Asian companies are increasingly claiming the role of key market players, promising to displace traditional North American leaders. At the same time, not only Asian corporate funds are ready to take the main positions, but also startups from this region that manage to raise ever higher investment levels. Thus, in 2018, the Chinese truck rental platform Manbang Group received the largest amount of funding, $1.9 billion, including from Softbank Group and CapitalG. These conclusions were reached based on the results of a profile study by analysts from the American company CB Insights.

The Chinese market has also become the record holder in the Asian region for attracting investments from corporate ventures. Namely: the Asian region accounted for 38% of all transactions involving corporate venture capital in 2018.

According to the CB Insights report, funding for Chinese startups increased by 51% - to $10.8 billion, and the number of transactions - by 54%, to 351. For comparison, financing of startups in Japan, although it increased by 56%, was at the end of 2018 only $1.4 billion. The largest deal for the market was a $63 million investment received by the wealth management platform Folio. Investments by corporate venture funds in Indian startups also remained small compared to China - the number of transactions increased by 20%, from 59 to 71, and the volume of investments amounted to $1.8 billion. The largest deal for the market was the investment of structures of the Japanese SoftBank ($1 billion) in Indian hotel chain Oyo Rooms.

However, for now, funds still retain leadership in the corporate venture investment market - the total volume of transactions in 2018 increased by 28%, from $20.7 billion to $26.5 billion, and the number of transactions increased from 945 to 1046 (an increase of 11% ).

$6.2 billion - investments in the information security market

Investments in fintech amounted to $111.8 billion; growth by 120%

In 2018, global investment in the financial technology sector reached $111.8 billion, an increase of 120% from the previous year's $50.8 billion, according to a study compiled by the consulting company KPMG. Read more.

Fintech attracts record investments of $39.57 billion

At the end of January 2019, the results of a CB Insights study were published, according to which, at the end of 2018, financial and technology companies from around the world attracted a record venture capital - $39.57 billion, which is 120% more than a year ago.

According to the study, in 2018, investors took part in 1,707 transactions, while in 2017 - in 1,480. Experts attribute the growth in funding to large startups that raised more than $100 million at a time and received a total of $24.88 billion. For example, investments to Ant Financial Services Group (the operator of the most popular payment system in China, Alipay), affiliated with the Internet giant Alibaba Group, amounted to $14 billion.

Venture capitalists are pouring billions of dollars into fintech companies in hopes of wresting market share from incumbent financial institutions with easier-to-use and cheaper digital financial services. Fintech companies have emerged in all sectors of the financial industry, including lending, banking and asset management. In the last quarter of 2018 alone, five more of these startups were valued at more than $1 billion, including credit card provider Brex, digital bank Monzo, and data aggregator Plaid.

The biggest jump in the number of deals in 2018 was observed in Asia - their number grew by 38% compared to 2017, and venture capital reached a record amount of $22.65 billion. In the United States, financial technology companies raised $11.89 billion through 659 investments . The number of investment deals in Europe fell, but the size of financing also reached a maximum of $3.53 billion.

This pace of development in the fintech industry could be delayed by an initial public offering in 2019, analysts at CB Insights warn.

A startup worth $1 billion or more appears in China every 4 days

At the end of January 2019, the Hong Kong research company Hurun Report published a report in which it reported that almost every four days a so-called “unicorn” - a startup with a market capitalization of $1 billion or more - appears in China. Read more.

The volume of venture capital investments in Europe hit a record, but the number of deals fell by a quarter

At the end of January 2019, PitchBook's annual European report revealed that 2018 was a record year for venture capital investment in Europe, although the total number of deals fell by more than a quarter.

In 2018, a total of $23.3 billion was invested in 3,384 transactions, which is 4.2% more than the previous year. But the total number of transactions fell by 25.9%. It is assumed that investors were more interested in investing more money in companies at a later stage of development than in providing smaller chunks of investment to young start-ups.

PitchBook's research covers every industry and includes pharmaceuticals and biotech, energy, commercial services, media and more. At the same time, half of all European venture investments in 2018 accounted for technology companies – up to $11.85 billion.

Direct venture capital investments paint only part of the picture. The PitchBook report found that exit value was $54 billion in 2018, up 164.8% from 2017, while the number of exits fell 30.5% (to 373). However, if you remove the Spotify and Adyen IPOs from the report, the exit value actually decreases by 4.2%. Also, PitchBook's 2018 report shows that venture capital funds raised $9.54 billion across 62 funds, representing a slight 0.2% increase in fund volume and a 23.5% decrease in deal count.

PitchBook analysts note that despite the decline in deal numbers, the European venture capital ecosystem maintained a healthy level of investment throughout 2018 as investors turned their attention to fewer, more mature startups. Three investments have crossed the $1 billion threshold, which analysts consider a significant milestone as it shows the confidence of investors who are pouring huge amounts of money into startups.

Record venture funding in the information security sector - $5.3 billion

In January 2019, the American investment company Strategic Cyber ​​Ventures, specializing in assets in the field of information security (IS), reported a record amount of venture funding for developers of cyber defense technologies and services.

According to Strategic Cyber ​​Ventures, in 2018, cybersecurity companies raised $5.3 billion in venture capital globally, up 20% from $4.4 billion a year ago.

Most often, investors invest in American information security companies: they accounted for 46% of venture funding in the market in 2018. Asian players are in second place (22.6%), European players are in third place (12.7%).

The Strategic Cyber ​​Ventures report notes that the trend of investment shifting outside the United States is observed not only in the cybersecurity market, but throughout the technology industry. Many large international funds and investment companies are increasingly investing in non-US startups.

Meanwhile, Chris Ahern warns that investment in the information security sector may decline in 2019, because, according to the expert, “investors are a little tired, and in some way, manufacturers are tired.”

Co-founder and CEO of Strategic Cyber ​​​​Ventures Hank Thomas (Hank Thomas) in a conversation with Reuters called the People's Liberation Army (People's Liberation Army) the world's largest source of cyber threats by the beginning of 2019.

Highest level of venture funding since 2000

In early January 2019, analysts from PwC and CB Insights published a report according to which 2018 saw the highest level of venture capital funding since 2000, the last year of the dot-com bubble.

During 2018, $207 billion was invested in 14,247 transactions worldwide, up 21% from 2017. The total volume of financing for the year increased by 30%, amounting to $99.5 billion across 5,536 transactions. During the year, some 382 fundings (including 184 in the US) totaled more than $100 million, up from just 266 in 2017.

In the US, 53 new companies raised $1 billion or more in venture capital in 2018, up from 29 in 2017. In the fourth quarter alone, 21 such companies registered, the highest ever.

Investments were driven primarily by companies in artificial intelligence, digital health and fintech, with AI-related funding up 72% to $9.3 billion, while venture funding in the San Francisco region jumped 55% to $28 billion, and funding in New York reached $13 billion.

Despite the record numbers, deal activity fell across the world in the fourth quarter, except in Asia, where activity continued to pick up. In 2018, compared to 2017, venture capital investment in Asia grew by 42%, and the volume of invested funds increased by 11%. Asia broke records across the board: the share of funding funds of $100 million or more grew by 35% (to 162), and the share of new companies with investments of more than $1 billion increased by 60% (40 companies opened).

The report does not make any forecasts for 2019.

China has become the leader in startup investment for the first time

2017: Investors invested more in Chinese AI startups than in American ones

In 2017, investments in startups from around the world engaged in artificial intelligence technologies grew by an impressive 150% and reached $10.7 billion, while in 2016 the amount of investments was $4 billion. Chinese AI companies became leaders in terms of volumes of attracted investments and ahead of their American colleagues. Read more.

US venture capital market

2014

American venture funds are more interested in IT companies, while in Europe the demand for technology investments is much weaker. According to Ernst & Young, in 2013, European companies attracted $7.4 billion in venture capital investments, American - $33.1 billion. The global value was $48.5 billion. According to Thomson Reuters, in the second quarter of 2014, American venture capital companies closed 1,114 transactions totaling $13 billion.

2011

According to data cited by Thomson Reuters in The MoneyTree report prepared by PricewaterhouseCoopers and the US National Venture Capital Association (NVCA), in the first quarter of 2011, hardware startups received only $111 million in venture capital investments, while in the first quarter last year - $138 million, and in the fourth - $114 million. Telecommunications startups received $142 million - almost half as much as in the first quarter of last year ($254 million).

At the same time, $1.1 billion was invested in software companies, up from $809 million in the first quarter of last year. Some venture capital firms, including Accel Partners and Bessemer Venture Partners, which have traditionally worked with American startups are creating new billion-dollar funds for investment in India and China.

Overall, 736 companies received venture capital investment totaling $5.9 billion during the quarter.

2009

Venture capital investment fell 61% in the first quarter of 2009, the lowest in 12 years, according to a new report from PriceWaterhouseCoopers, the National Venture Capital Association and Thomson Reuters. During the first three months of 2009, the total volume of venture capital was $3 billion. This is the lowest level since the first quarter of 1997, when figures of $2.96 billion were observed. In the same quarter of 2008, investment amounted to $7.74 billion.

According to the report, 549 U.S. companies received investment in 2009, down from 997 in 2008. That's the smallest number since the first quarter of 1995.

Almost all industries have experienced a decline in venture capital investment. The largest funding was received by companies operating in the software market - $614 million was spent on 138 companies, which is 56% lower than in 2008 in terms of funds and 45% in terms of the number of transactions concluded.

The total volume of investments in Internet companies amounted to $556 million - 58% lower than in 2008.

One of the few industries in which, despite the crisis, there is an increase in investment volumes, is the healthcare sector, where investments increased by 6% and amounted to $46.7 million.

The level of investments in the first round of financing of companies was especially low - 132 companies received $596 million, which is the lowest figure since the third quarter of 1994. For comparison, in 2008 the first round of financing was carried out for 324 companies, which received funds in the amount of $1.7 billion

The most notable transactions of the first quarter of 2009 were investments in the pharmaceutical company Anacor Pharmaceuticals ($50 million), the mobile payment service Obopay ($35 million), and the microblogging service

Any startup highly valued by investors is, first of all, a team: money loves those who are able to conquer the world, and there is no point in betting on a company with a local product for an investor. It is impossible to build a portfolio with a positive economy on this, and investors do not like to lose money: the need to conquer other regions and scale to the largest market on the planet must be “hardwired” into the DNA of a star team.

The United States has long become a Mecca for technology entrepreneurship. The American economy in this area accounts for 25% of the world's. The sales strategy for a technological product in the United States is built on the entire country at once, and not on small enclaves of 10-20 million people, as in Europe.

There are a huge number of professional investors in high-risk technology businesses: there are more than 1,000 venture capital funds in the United States, with most of them concentrated around San Francisco. A venture fund is a temporary organization created by a management team for eight to ten years. Their goal is to invest in technology companies at various stages to make money for a limited number of partners. All this, of course, is packaged in an American way as “a step into the future” and “changing humanity for the better.” But no: the main driver is precisely making money for investors and fund partners.

Investors are different

First, venture funds differ in the areas in which they invest. It is impossible to become successful if your focus covers everything from robotics to life extension technologies. Investors try to choose a fairly narrow niche within which extra competencies and a community of experts can be formed.

Funds “sell” their focus to entrepreneurs as a unique advantage and use their expertise to attract potentially great companies at a very early stage. In any country in the world, the supply of money greatly exceeds the demand, and the United States is no exception. All investors want to invest in the business of a team that does not want to take money, is self-sufficient and is growing quickly (at least doubled per quarter).

Secondly, investors should be distinguished by the checks they “write” to teams. In Silicon Valley, there are several main stages that attract the maximum number of players (but not always money):

Angel investments are the first checks written by successful technology entrepreneurs or people who have made money in other fields. Typically, this amount averages $50,000-$100,000, and is enough for an entrepreneur to test the value of the product to customers and, by hiring the first employees, begin to create an MVP (minimum viable version of the product).

A Pre-Seed investment designed for companies that have evidence of potential customer interest, but may not yet have an MVP. The main investors are the founders themselves and business angels. Check - up to $250,000. The most famous and coolest angels in the USA are Brad Feld (by the way, you can find many of his books on Amazon - some of the best for founders), Ron Conway and Marc Andreessen.

Seed rounds attract teams with a created MVP and the first paying clients. This round is “calculated” at $0.5-3 million. Investors’ money is enough for six months to a year, and the team’s main task is to set up scalable sales of the main product. At this stage, the key players are business angels, seed funds and accelerators. The most famous are Y Combinator, 500 Startups, Techstars, while special attention should be paid to First Round Capital, which have already become superstars in the venture capital market (Uber, Square came out of them), as well as Peter Thiel’s Founders Fund with a very professional team ( Palantir, SpaceX, Facebook).

Late seed stage (Post-Seed) - for startups that have raised a seed round, but who do not have enough time to test the main hypotheses and receive a revenue stream. This is a natural situation for the venture business, so the team needs two or three more quarters for development, for which it attracts additional funding: for example, $2 million for Post-Seed after seeding $3 million. At this stage, early-stage funds often operate, business Angels and accelerators often support maintaining their stake in this round in good, growing companies.

Rounds A/B/C (Series A/B/C). The further the letter of the alphabet is, the larger the funding round. The amount for Series A usually ranges from $2 million to $15 million, the main task of the teams is to optimize the user base and scale to other market segments and regions. It is at this stage that professional venture funds and corporate funds emerge. Round B can already be tens of millions of dollars, C - hundreds. There are a lot of funds investing at later stages, especially Andressen Horowitz (the first of all to offer a powerful back office for startups) is making waves in the market. You shouldn’t write off the “old guys” either: it’s difficult to expect more stability in steep deals than Sequoia Capital and Accel Partners.

Investments at each stage are determined by the logic and level of development of the fund’s management team. If a person wants to invest in 5-10 companies a year with small checks, he becomes a business angel. If you manage to raise a fund for $10-20 million, an early-stage fund or startup accelerator appears. The more financially voluminous the fund, the later the stage: after all, if the team manages $1 billion, then you can invest $500,000 checks until the end of time, but this will not lead to the required investment speed (the main transactions must be made in the first four years of the fund’s existence) and return investments.

USA as a “separate” world

America has a fairly large and distributed economy, so there are many points of presence for venture investors. And startups appear exactly where money is concentrated.

Northern California

The main point in the global venture ecosystem is Silicon Valley, namely the area from San Francisco to San Jose. Many call this place overrated, the birthplace of “tech bubbles” and generally uncomfortable for living. But the main advantage outweighs all possible disadvantages: the Valley has absorbed the smartest people from all over the planet, absorbed enormous expertise and raised (and continues to grow) global leaders.

Abstracting from the controversy, one thing is obvious: the Valley is home to the maximum number of investors - both funds and private business angels. Plus, almost all American and international corporations have R&D centers and corporate funds here. As a result, startups in the Valley can be found on any topic, but mainly related to the Internet sphere.

Boston (Massachusetts)

Another island of attraction for startups and investors, but their main focus is not on IT, but on biotechnologies (life extension, curing diseases, biohacking), as well as pharmaceuticals, medicine and clean technologies (green energy, renewable resources). In Boston, there are more than 20 startup incubators and accelerators at universities and the same number with specifications for various industries, from biomedicine to robotics. For example, the well-known startup that creates smart and scary robots, Boston Dynamics, is from there.

New York (New York State)

New York is always compared to Boston. But the first wins in terms of the amount of money that is invested here. The main startups here are from the fields of finance, entertainment, and computer technology in general. Like many things in the United States, this is a consequence of history, in this case the presence of Wall Street.

Austin (TX) and Denver (CO)

Austin has almost won its right to be considered a significant player in the venture capital market, but is still far behind Northern California and the East Coast of the United States. Many entrepreneurs move to Austin, Texas, or Denver for more economical housing and less expensive employees (an engineer in California rarely costs less than $150,000 to $200,000 per year).

Funding in these enclaves is still at an early stage of development, there are not very many funds and business angels. There are certain problems with early-stage investments, since funds put too much money into the later stages, and there have been no large exits to return funds to the startup ecosystem for a long time. But the community is growing: There are now hundreds of startups in Boulder, and large companies like Google, VmWare and Oracle have offices of 500-800 people.

Los Angeles (California)

Los Angeles leads the way in entertainment-related investments, with more than $4 billion invested in startups in 2016. As is the case with Texas or Delaware, those who find life in Northern California expensive are moving to Los Angeles. By the way, Peter Thiel, one of the most successful entrepreneurs in the United States and founder of PayPal, recently moved here. One example of the success of the Los Angeles ecosystem is Snapchat - a billion-dollar valuation, millions of users and a successful IPO. However, this does not make the residents of Venice Beach too happy - the company bought up almost all the property on the first line in front of the ocean to create comfortable working conditions for engineers.

Seattle (Washington State)

Seattle is home to the headquarters of many corporations, including Microsoft and Amazon. Starbucks grew out of Seattle. The first investors arrived here about 30 years ago, and the first funding came from Silicon Valley. Nowadays, startups that work with retail and e-commerce are mainly concentrated there.

One of the main reasons for the high activity in different parts of the United States is the concentration of innovation around large universities, whose graduates create startups. In California these are Stanford and Berkeley, in Boston - MIT, in Austin - the University of Texas, etc. The ecosystem is formed around passionate people who want to create new things, and not just live their lives devoting themselves to working in a large corporation. Investors initially emerge from classical business areas; the founders of technology companies soon also integrate into the investment ecosystem, which makes it a working mechanism for creating more and more new companies and turns it into a money-making machine.