Over on PeachSeedz Cindy Cheatham wrote an article about Knox Massey’s presentation at ATDC on the state of angel investing.  Both she and Knox addressed the capital gap, the lack of funding for firms looking to raise more than $500k but less then $2 million. While this gap certainly exists I think it is shrinking for three reasons.

1.  The rise of super angels and super angel groups.  The Seraph Group based in Atlanta is a good example of the latter.  You have all the required fundamentals of a good investment and need to raise #2 million.  They can write that check.

2.  Capital efficient startups.  There are lots of companies, particularly in the web app space, that don’t need more anything close to $500k to get started and gain customer acceptance.  YouTube just jumped over that gap and raised $3.5 million at $8 million pre due to the traction that they had created with little capital requirements.

3.  VCs moving downstream.  VCs are smart.  They recognize the capital gap just as much as you and I.  Some of them seem to be focused on being able to fund companies in the capital gap.   Charles River’s QuickStart,  Southern Capital Ventures, and Union Square Ventures are three examples that come to mind.

Yes there is a capital gap problem.  Just like all real problems that are big and real, there are lots of folks out there looking for ways to solve it.

Update:  Interesting conversation at Hacker News.