Today’s New York Times‘ article Angels Flee From Tech Start-ups is more an indication of poor reporting than it is on the state of angel investing in today’s environment. One could argue that today’s environment has made for better, more effective angel investing, since lots of “dabblers” have been scared away while the “professionals” (full-time angels, small venture funds, etc.) are seeing an increasing number of high-quality deals. Are fewer companies getting funded by angels? Of course. Should all the companies that had previously been funded by angels, many of them dabblers, gotten funded? Definitely not. So is value creation in the early-stage space really being inhibited by a dearth of angel investment? I don’t think so.
Bottom line, if you have a strong, technical founder, a solid business plan, a market either ripe for disruption or fertile for rapid growth and some early traction, you can get a business funded. Clearly there are a lot of variables at play, but deals are getting done and don’t let the morose people in mainstream media tell you otherwise. As discussed previously, the venture industry IS broken; but this doesn’t mean that true early-stage investing is broken. In fact, it is arguably the place to be. The combination of fewer players seeing more and better deals together with falling valuations makes this a good time to place some intelligent bets, IMHO.
Let me take this analysis one step further: angel investors and small VCs often like to build strong syndicates, including those people who are strategic and can open doors, provide advice, and generally de-risk the business plan. Larger venture firms frequently like to control funding rounds themselves, often limiting their ability to get the best people involved who may only be willing to invest $50k but can add hundreds of thousand if not millions of dollars of value through their active participation. This is the way I approach the business, as do many of the people I work with who lead financing rounds of, say, $500k-$1.5 million.
So all is not lost if you are a start-up and need angel financing. But take heed: it is super competitive out there. And if you are unable to stand out from the crowd along the key dimensions mentioned above, then this is not the market for you. Wait for the next up-cycle, when all the dabblers come out of the woodwork and are wiling to try their hand at early-stage investing once again.
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