Two things lately:
- For virtually every single round, from early pre-seed to Series B and beyond, I’m constantly asked “do you know any good angel investors?”
- I don’t know that many angel investors.
I’ve informally talked a lot about this in person over the last few months, and I’ve kind of been surprised at how much it’s resonated among VCs, founders, and the angels I do know. I think there’s a lot of reasons for this.
The juice and the squeeze
For one, the economics have shifted a bit. A lot of the old “superangels” from the 2000s-2010s have realized it’s potentially more profitable to take your 2/20 by raising a small (or big) fund instead of using your own money. The number of solo GP funds and small funds has exploded over the last decade. Many of those were raised during the manic period immediately post-Covid, with 2021 and 2022 vintages getting hit hard. Might cause more than a few to rethink whether venture is the space for them after all.
Technology startups themselves have changed dramatically as well. The historical “place” of an angel investor is to help nurture a company along from the idea phase to the revenue-generating phase, which is where VCs can jump in to help bankroll growth going forward. That’s obviously no longer the case. For one, the span from the “idea phase” to the “revenue-generating phase” can now be measured in a matter of hours. VC has caught up to this, too: there are now scores of funds focused entirely on the pre-seed (or earlier) segment. Running around collecting small checks from different value-add angels is a bit less palatable compared to just grabbing a pre-seed fund to fund your whole initial round.
And when they do fund it… angels can be pushed out by the valuation game. It’s not uncommon — particularly if you have AI plastered all over your pitch deck — to immediately garner $30M to $100+M rounds before you’ve even jotted out the real details of what you’re building. Things are weird right now. Angel investing can attract risk-seekers; getting a 6x return from $100M to a $600M exit (minus dilution) isn’t that attractive for a VHNW to UHNW investor in the grand scheme of things. Even the romanticism behind it can be chipped away from angels who just seek the love of the game, so to speak; where’s the fun in helping advise someone when the round lets them hire 50 engineers from the start?
So what’s next?
I’m — obviously — still long on angel investing, though. I still actively invest, and find it compelling into the future, for a few reasons:
- Returns aren’t everything. I mean, obviously, otherwise we’d park our shit in index funds instead. I do like the goal of building companies, and I feel like I can help founders in that position. Alex Danco had a nice 2019 piece on the social impact of angel investing. So yes, angel investing is rewarding… just not financially.
- It’s rewarding financially. Angel today can just take some re-thinking of your relationship towards angel investing. For example: historically I’d usually invest in pre-seed and seed stage (it’s more fun!), but a few years back I invested in some Series B rounds and they’ve been pretty lucrative, much to my surprise.
- The game is still rigged. Most angels can benefit from all the fucked-up things VCs have helped get into law over the decades: QSBS is still kind of mind-boggling that it exists, Section 1045 rollovers help reduce your long-term downside, Opportunity Zones can pop up in deals in interesting ways, you can still invest in startups tax-free through your Roth, and there’s like a billion other things that you can leverage. As far as an asset class goes… startup investing has quite a bit of inherent benefits.
Part of what I might be seeing is just a simple aging-out of my millennial cohort; many have moved out of the Valley, gone on to cut down trees for their life’s work or something, or simply have Enough to where they don’t feel the need to continue taking risky swings on new startups. And I think this all comes at a time where we’re seeing an awful lot of new millionaires being minted now and into the future as some truly large companies IPO and exit. I suspect there’ll be a lot of new angel investors joining the ranks because of it.
I’m Doing My Part™
And yet… I’m not lying when I say virtually all startups I talk to, regardless of size, are still actively interested in talking to angel investors. If someone has expertise or relationships you’d like to tap into, most companies will be able to extract $5k of value out of you. There is no minimum angel check these days, of course. I think that’s part of the knock-on effects from AI: if technology itself has become less of a differentiator, then advisor networks become more valuable in the race for talent and customers.
To that end, I feel (and certainly have) a vested interest in encouraging more people to become angels. It’s been something I really enjoy, and selfishly I’d like to have more angel dorks to talk to and refer to portfolio companies.
So if angel investing is dead, then the natural next step is to have a lot of dead angels still investing together. Every vague idea needs a name, so I’m going to use Dead Angels for a new experiment I’m doing: bring some people together in San Francisco once a month to drink and be merry. (Astute readers will recognize this from the GitHub playbook; drinkups were great, dammit.) Swing by the website — deadangels.com — to join. Our first meetup is next week; would love to see you there if you’re an active angel or you’re curious about getting into all of this.