LinkedIn Is A Reason Startups Raise More Money, Angel Investor Says

SugarCRM SugarCRM CEO Larry Augustin

There's a new trend in the venture funding world where startups are landing really big seed rounds of well over $1 million.

They're doing this by getting handfuls of angel investors involved, says Larry Augustin, a longtime angel and CEO of SugarCRM, a maker of business-application software.

Huge seed rounds are driven in part by social networks like LinkedIn, he believes, because it's become so much easier to find angels or stay in touch with the ones you know.

While this sounds like good news, a large seed round "changes the dynamics of how those companies get built," Augustin told Business Insider.

Specifically, he said:

• With more angels giving money to the same company, fewer get personally involved, so there's less handholding.

• Investors have higher expectations of the founders and how fast they can show success.

• When more funds are needed, a venture capitalist will want the business to be in good shape, commanding a high valuation, before it invests.

It's an interesting observation. A quick search on CrunchBase showed 65 seed deals of $1 million or more since the start of 2012.

There is an upside. With smaller investments spread over more people, more startups are getting funded.

That's good for "fostering innovation," Augustin says.

But, he adds, "My guess is that failure rates are going to be higher as well."

Augustin is both a former venture capitalist and a famous angel. He's been a big name in the open-source software world since founding SourceForge in the Internet bubble days.

He's funded lots of companies including SugarCRM before he became CEO. He's currently invested in and/or on the boards of startups like Appcelerator, DotNetNuke, and ZenPayRoll. His previous startups include Pentaho, JBoss, and XenSource.