For Fund-House the best time is the pre-seed stage. The idea stage is too risky because there is essentially nothing tangible to invest in and no foundation to build upon. The idea stage is when the founder(s), family, and friends are putting up their cash - it's the riskiest time and returns are very questionable. At this stage there is no hook for the rational investor to grab onto and move forward.
The pre-seed stage is where an angel investor wants to be. Angels get the best deals at pre-seed because the supply of capital is low but the demand is high. Also, smaller angel investors can find better deals pre-seed because there is less competition for those deals; particularly, from venture capitalists and institutional investors who compete for deals at later stages.
To minimize risk, angel investors require a high degree of diversification with many small investments. Diversified investment portfolios are easier to build at the pre-seed stage because founders are happy to receive say $10,000 investment increments on say, a first-time $200,000 round. Those same companies are not going to entertain small dollar increments when they reach the emerging stage and are looking for $10 million.
Another big problem for Fund-House is avoiding non-business oriented entrepreneurs. This avoidance is much easier at the pre-seed stage as the business is somewhat already proven to have validity and you should be able to size-up the founder(s)' acumen.
Fund-House Hint: Entrepreneurs should not wait until the emerging stage to seek funding.
Jim Lavorato
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