Funding Gap

The “chasm” between Seed and Traditional VC

The number of places for a start-up entrepreneur to turn for financing has radically changed. Venture capital, once the preferred method for funding early stage start-ups, is no longer the prevailing choice. Increasingly, high-quality venture firms succumbed to the pressures of raising larger funds (often exceeding $500 million) as huge capital flows from institutional partners became more readily available to the market prior to the financial crisis. With such large amounts to put to work, many firms essentially abandoned true early stage and seed investments because start-up companies could not absorb enough of the dollars. Venture capitalists needed to invest tens of millions or more into each company, which created a disproportionate level of financing at the later stages of private company funding. Recently, things have started to evolve.

Recently things have started to evolve, evidenced by a rise in the so-called “Super Angel” firms or Institutional Seed capital. These firms, many of which are composed of former entrepreneurs and investors, are essentially stabilizing the foundation for start-ups and provide much needed product development and early beta testing capital (typically $250k - $1 Million). Some firms have raised formal funds (limited partner capital) to help foster this initial development. Cava believes this is a very healthy component of the infrastructure needed to support continued growth for investment opportunities and we look to partner with many of these leading firms and Angels.

Between the limited levels of capital raised by friends, family, Angels and Seed Investors (under $1 million) and the larger sums invested by traditional venture capital and private equity firms ($5 million and up) lies a "Capital Chasm." With a small set of firms in the Metro New York region focused on post seed, Go-to-Market stage financing, the problem is exacerbated. To this end, Cava has been purpose built for "gap funding"; bringing significant yet appropriate levels of capital and operational experience to help each company successfully execute business strategy. We come in when seed runs out!