Angel Investing: Some observations and resources

Having helped run the Angel Forum for a few years (link: AF's Nov 4th workshop on "Exit Strategies for Investors & Entrepreneurs"), I got to see and hear some interesting trends in the angel and VC world. Some were controversial at the time, but are becoming more 'normal' today. The general trend is that VC's are attracting too much capital and have moved up-market to look for deals that have higher pre-money valuation AND high growth potential. On the other hand, angels are happier with smaller investments with moderate-to-high growth potential. The troubles began when VC's moved up-market before angel groups and super-angels stepped in to fill the "valley of death." The valley of death is the gap between seed funding (by friends, fools and family, plus some angels) to get to prototype, and the resources required to get to market growth. Angels used to fund up to market entry (not necessarily growth), and VC's would fund market growth, only after early customers had proven the market exists. Filling this gap included a combination of angels forming groups to pool their knowledge, contacts and cash, plus quicker exits by targeting exit by acquisition, not IPO. This is perhaps good news for angels and entrepreneurs. VC's on the other hand are being challenged to demonstrate massive returns on large investments (sorry guys, it's easier for small companies to grow, than big ones). For the rest of us .. well, maybe it's time to find an angel to invest along side with, or wait for an IPO to fuel later stage growth.

For further reading, here are a few sources:

• Super Angels article at Knowledge@ASB from yesterday
• Basil Peter's (2009) "Early Exits" (email us if you'd like a copy)
• Tom McKaskill's (2009) "Invest to Exit" 
• Bob Wiltbank's (2005) "Investment Practices and Outcomes of Informal Venture Investors"
• Kauffman Foundation's (2004) "Guidebook to Developing the Right Angel Organization for Your Community"

So what does it all mean? Well, funny you should ask.

In Sydney (and elsewhere) more and more people are getting together to launch seed funds. Each has their own particular theme. For example:

• http://www.startmate.com.au/ - Launched in 2010, StartMate wants to help technically-focused founders get started
• http://www.sydneyangels.net.au/ - Launched in 2008, capital for innovative, high-growth, early stage businesses based in Sydney
• Try Angelsoft for more, too

Books and blogs: growth and exits

Here are a few resources I've come across over the last couple weeks.

I visited the facilities of ATP Innovations earlier this week and am impressed with the level of innovation happening there. Along the way, I came across a related blog calles Successful Innovation which emphasizes events and podcasts by ATP Innovations' bizBetClub.

While at the last Angel Forum, I picked up a copy of Basil Peter's latest book: Early Exits.

"This book is about the large number of other exits - the ones that are not driven by the VCs. Exit opportunities have changed dramatically in the past few years. Today, it's more likely that a company will be sold without ever having an investment from a venture capitalist.

Exits are also happening much earlier than before. The largest number of exit transactions today are in the under $30-million valuation range. These exits are often completed when companies are only two or three years from startup.

The goal of this book is to help entrepreneurs and angel investors have more successful, more frequent and more profitable exits."

I also recently had the pleasure to preview and provide a review for Tom McKaskill's latest book: Raising Angel & Venture Capital Finance. In a private email from him, he mentions the book is available free and may be distributed and put on my website, even though it costs $25 on his. Well .. here goes: FREE. Tom writes about his book:

"The objective of this book is to show the entrepreneur how they can create a business which assists the Angel Investor or VC fund to achieve their objectives. In doing so, there is a high probability of raising finance."

Overall, both books provide great overviews of the current state of privately funded startups (read not publicly listed). I highly recommend both for entrepreneurs who want to start companies, keeping in mind how they want to structure their business to attract the support of angels. While the ultimate goal is presented as a successful exit, the intermediate goal is just as clear: build a profitable business with high-growth potential.

PS: I have added a google calendar bar to the blog to highlight upcoming events related to innovation and entrepreneurship. Thankfully the events can easily be imported into other calendars without requiring manual transcription, and there's a separate RSS feed, too.