The Shifting Landscape of Angel Investing
December 5, 2014 | By Kevin Vela
Angels are getting smarter, and this is a good thing for entrepreneurs.
Over the past several years, I have seen a marked shift in angel investing. Three to four years ago, I saw large pools of unaffiliated angels making direct investments in startups. The terms were loose and disjointed, and while this provided good early-stage funds for startups, it made things difficult thereafter.
Today, I frequently see angels banding together informally, or through structured angel syndicate groups or funds. This really is a national trend, as evidenced by sites like AngelList, OneVest and the CircleUp, all of which are essentially crowdfunding for accredited investors. The terms are more consistent and reasonable, and they provide a runway for future rounds.
In my opinion, the driving force behind this shift is the increasing deal intelligence of angels. Angels are routinely sharing information electronically, meeting in person, attending angel conferences, and reading books and articles on the subject. Banding together to share knowledge, diligence, and risk across a deal only makes sense. The angels are getting smarter and, as a result, getting better deal terms.
This is resulting in an interesting paradox where there is more money at play, but very early-stage startups are finding it more difficult to raise angel capital. That’s because the capital is smarter. Almost all initial rounds these days are raised from friends and family, and angels are usually following-on to those rounds.
Angels are smart people; this is how they got to the point where they have disposable income for angel investing. So in the end, this shift is good for entrepreneurs. As angels get more comfortable with investing, they invest more into better (and more) deals, which should increase their appetite to do so, and make them the envy of their high-net-worth friends – thus bringing even more capital into the arena.