Creation Through Investment
Cradle Investing is the concept that both entrepreneurs and investors benefit from early, objective driven investments. The initial capital should be targeted at developing a company's customer and competitor understanding, go to market strategies, and other operations infrastructure.
One of the problems with start-up investing is the conceptual overlap between definitions of angel stage, seed stage, early stage, and even late stage investing. Entrepreneurs have a hard time determining when to raise what type of venture capital. When an entrepreneur begins to raise capital they can face extended diligence periods and skeptical investors. or a flood of relatively uniformed investors. Both can be difficult.
Cradle investing deals with these issues by involving investors from the very beginning. Investors help shape the vision for the company and founders are consequently aware of the inherent risks faced by the business before the angel, seed, and/or early stage capital is sourced. Most importantly, if Cradle Investors have already committed capital and sweat equity to the creation of the company, they can bring a greater sense of excitement to the start up than an investor who commits capital after the business is running.
Entrepreneurs want the resources and expertise of seasoned investors while investors are looking to reduce the risks associated with an investment. Understanding the common questions among entrepreneurs can strengthen the relationship between the entrepreneur and investors.
Venture Capital is usually part of the private equity allocation in modern portfolio. Investors and entrepreneurs need understand how early stage investments compliment other investment types in order to know which investments fit a particular investor's needs.
There are a multitude of strategies for investing in early stage companies. Some are time tested in other asset classes and adapted for VC while others take a whole new approach.