University of New Hampshire's Center for Venture Research has posted its 2008 1H summary of Angel investing statistics. The key points for me were:
Angels, as an investing class, put more money to work in first and second round investments than VC's
At least during 1H of '08, Angels were investing more dollars than in '07
As expected, and quite different from the venture business, Angels do not invest deeply (multiple rounds) in companies they fund. Preferring to spread the dust wide, rather than deeply. I have not seen any studies showing returns for the Angel class, but suspect the unwillingness to pile capital into the winners (and having full exposure to the losers), greatly hinders overall returns.
Showing posts with label angel investing. Show all posts
Showing posts with label angel investing. Show all posts
Thursday, December 4, 2008
Sunday, November 23, 2008
The Role of the Angel Investor (click here)
From the Tech Crunch 50 conference earlier this year.
Jason Calacanis (founder Weblogs, Inc sold to AOL) is the moderator for a panel that includes:
Ron Conway- (Uber Angel investor). Involved with, Google, Facebook, Paypal,AskJeeves etc.
David Kidder-(Clickable, where he raised $22mm). Also, works with companies to help them raise Angel and venture capital
Chris Sacca- (ex-Google employee) Twitter investor
Matt Coffin- (LowerMyBills), Mahalo,Demand Media etc.
Yossi Vardi- (ICQ co-founder), 'go to' Angel for Israeli consumer facing internet entrepreneurs
Highlights:
1. The only effective way to reach Angels (or VC's is via introduction). Cold pitches just don't work well.
2. Yossi is not interested in the business model as 'the more attractive the business model, the higher your losses will be'. He invests in people...
3. Investing local is important as unexpected issues happen that can best be dealt with 'over a few beers'.
4. A recognition that good is good enough, and that they will miss 'great' investments. A portfolio approach, across sectors, is an important first step, that leads to picking the best one's available in each sector. Perhaps a more disciplined 'spray and pray'.
Interesting that no one highlighted a drive for market leadership, innovation, or 'business model'. In fact, business plans were derided as a waste of precious time.
Just one of the many cultural differences between Angels and 'Pros'
Jason Calacanis (founder Weblogs, Inc sold to AOL) is the moderator for a panel that includes:
Ron Conway- (Uber Angel investor). Involved with, Google, Facebook, Paypal,AskJeeves etc.
David Kidder-(Clickable, where he raised $22mm). Also, works with companies to help them raise Angel and venture capital
Chris Sacca- (ex-Google employee) Twitter investor
Matt Coffin- (LowerMyBills), Mahalo,Demand Media etc.
Yossi Vardi- (ICQ co-founder), 'go to' Angel for Israeli consumer facing internet entrepreneurs
Highlights:
1. The only effective way to reach Angels (or VC's is via introduction). Cold pitches just don't work well.
2. Yossi is not interested in the business model as 'the more attractive the business model, the higher your losses will be'. He invests in people...
3. Investing local is important as unexpected issues happen that can best be dealt with 'over a few beers'.
4. A recognition that good is good enough, and that they will miss 'great' investments. A portfolio approach, across sectors, is an important first step, that leads to picking the best one's available in each sector. Perhaps a more disciplined 'spray and pray'.
Interesting that no one highlighted a drive for market leadership, innovation, or 'business model'. In fact, business plans were derided as a waste of precious time.
Just one of the many cultural differences between Angels and 'Pros'
Thursday, November 20, 2008
The view from on high- New York Angels meeting
Yesterday, I attended the monthly meeting of the New York Angels, a group of 75+ Metro New York investors that fill the gap between friends/family and venture capital financing. Members include Esther Dyson, Gideon Gartner, Josh Kopelman, Scott Kurnit and Chris Anderson. (I have been a board member for 3 years). As background, over the past 4 years the group has invested more than $20mm in 50+ young companies. The companies mirror the Metro NY landscape with many investments in the internet arena, a smattering of retail, and a respectable share of medical oriented firms.
David S. Rose, the Chair is well plugged into the Angel investing activity around the country, through his investment in Angelsoft and he began the session with a perspective of the way Angel investors seem to be reacting to the market downturn. He sees Angels taking a 'new approach to investing' whereas, despite continued innovation, follow-on rounds for seed investors will be mostly problematic as the venture community is hoarding capital to support their existing portfolio companies; leaving diminished resources for new investments.
From a deal overview, he sees valuations plunging in the 40% range to a pre-money in the $1mm range for seed investments. Moreover, the business objectives for stakeholders will place a premium on getting to self-sustainability, at the expense of growth. This shift is directly tied to his perspective that scant resources will be available from professional investors, so it's better to own a grape than to throw out a rotten watermelon (my words, not his).
One of the beauties of Angel organizations is the diversity of backgrounds, thought, and opinion; sort of like going to the in-laws for Thanksgiving. As such, let me share why I disagree with some of the sentiment expressed by David:
1. I don't think professional investors are interested in small companies that have reached break-even and 'with fresh capital' have the potential, but not the record of seeking break-out growth. The environment is littered with firms that have great potential, but limited growth that a VC simply does not have the time to filter all the coal dust to find the diamond. The math for early stage venture investing success dictates that each portfolio of an early stage investor should have at least one 10x that returns most of the fund. Each investment ought to have that potential.
2. I don't see a plunge in seed stage valuations. Depending on which side of the field you are sitting on, it's a shame (or a virtue) that investors can't own more than 100% of a Company. Realistically, the market dictates a healthy balance between greed and avarice whereas early investors, post-investment, ought to leave a healthy amount of equity in the entrepreneur's pocket. After all, these are the folk whose passion will drive them to 24/7 company commitment, who will face multiple rounds of later dilution and are the glue that will make your investment more valuable. Owning too much, too early is a Faustian bargain.
Instead of a plummeting prices (ok, there will be some moderation), I see a 'right shift', whereas seed investors who put money behind ideas, will now look for a finished product. Those seeking a finished product, will look for some measure of market acceptance. And each will invest at their historic valuation levels for an investment that has now been measurably de-risked.
Entrepreneurs seeking seed capital will revert to cold garages. Prudent investors will have wonderful opportunities to participate in a changed risk/reward environment. One, whose later returns, will depend upon participating in investments that are showing signs of attaining, or have reached market leadership.
David S. Rose, the Chair is well plugged into the Angel investing activity around the country, through his investment in Angelsoft and he began the session with a perspective of the way Angel investors seem to be reacting to the market downturn. He sees Angels taking a 'new approach to investing' whereas, despite continued innovation, follow-on rounds for seed investors will be mostly problematic as the venture community is hoarding capital to support their existing portfolio companies; leaving diminished resources for new investments.
From a deal overview, he sees valuations plunging in the 40% range to a pre-money in the $1mm range for seed investments. Moreover, the business objectives for stakeholders will place a premium on getting to self-sustainability, at the expense of growth. This shift is directly tied to his perspective that scant resources will be available from professional investors, so it's better to own a grape than to throw out a rotten watermelon (my words, not his).
One of the beauties of Angel organizations is the diversity of backgrounds, thought, and opinion; sort of like going to the in-laws for Thanksgiving. As such, let me share why I disagree with some of the sentiment expressed by David:
1. I don't think professional investors are interested in small companies that have reached break-even and 'with fresh capital' have the potential, but not the record of seeking break-out growth. The environment is littered with firms that have great potential, but limited growth that a VC simply does not have the time to filter all the coal dust to find the diamond. The math for early stage venture investing success dictates that each portfolio of an early stage investor should have at least one 10x that returns most of the fund. Each investment ought to have that potential.
2. I don't see a plunge in seed stage valuations. Depending on which side of the field you are sitting on, it's a shame (or a virtue) that investors can't own more than 100% of a Company. Realistically, the market dictates a healthy balance between greed and avarice whereas early investors, post-investment, ought to leave a healthy amount of equity in the entrepreneur's pocket. After all, these are the folk whose passion will drive them to 24/7 company commitment, who will face multiple rounds of later dilution and are the glue that will make your investment more valuable. Owning too much, too early is a Faustian bargain.
Instead of a plummeting prices (ok, there will be some moderation), I see a 'right shift', whereas seed investors who put money behind ideas, will now look for a finished product. Those seeking a finished product, will look for some measure of market acceptance. And each will invest at their historic valuation levels for an investment that has now been measurably de-risked.
Entrepreneurs seeking seed capital will revert to cold garages. Prudent investors will have wonderful opportunities to participate in a changed risk/reward environment. One, whose later returns, will depend upon participating in investments that are showing signs of attaining, or have reached market leadership.
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