Today’s angel investors fill a critical role for innovative, emerging companies. However, new angels are challenged by a lack of access to systematic and proven criteria for selecting winners. Combine this with the need to assemble a portfolio of investments and new angels often have poor results with early investments and some never return. Today’s investing environment combined with new approaches and structures offer new angels a great way to get in (or back into) the game.
The dramatic shift in start-up economics and the massive economic downturn as made the cost of entrepreneurship much lower than previously seen. With new technologies emerging everyday the ability of anyone to with a good idea to create a brand, product and company is multiplied. Cloud computing and open sourced software code make the costs of developers and infrastructure a fraction of what they once were. Social platforms and new communication channels make the cost of marketing and advertising tiny compared to the Super Bowl ads of the internet bubble days. And with jobs disappearing, more and more weekend entrepreneurs are making the leap to full-time business builders.
These new start-ups have a new mantra too. The lean start-up approach preaches capital efficiency, rapid iterations and speed to proof of concept. This approach while not right for every start-up should give all potential angels comfort. No more 6-month build outs and no more “trust me”. Milestones and rapid moves to monetize make progress visible and achievement measurable. Combined with the new economics these seed stage companies are requiring small amounts of capital and building big value (or failing fast but that’s another post).
Finally, the new breed of incubator/accelerator has created “batch” investing. By selecting and funding a number of start-ups at once these seed-stage greenhouses are creating an instant portfolio. Investors can now get instant diversification and at a lower price point than a typical single investment only a few years ago.
Small companies build economic value in multiple ways and not just for investors Now is the time for former angels to re-think how they are making their investments and for new angels to step up to the plate.