2015: The Year For Angel Innovation, Growth And Returns?13 January, 2015 / Articles
Angel investing and the startup economy has been through so many exciting changes in the last few years. I’ve been thinking about that as the new year begins and my organization celebrates ten years of supporting angel investors. This exercise has me convinced–2015 could be one of the most important years ever for angel investing.
Why? Here are the trends that I, with added insights from top angel investors on the boards of the Angel Capital Association and Angel Resource Institute, anticipate:
Investing Innovations and Trends Help Investors andEntrepreneurs
- Angels will be doing bigger and better deals in 2015. Some of this will come from a growing level of syndication around the country born from trusting relationships and standard syndication processes. A small but growing amount of this syndication will be international. It is striking to hear how many angels are interested in investing in deals based in other countries, co-investing with angels they’ve befriended from across the world. The biggest globalization is years away, but it is a trend to watch.
- Investment innovations are speeding up the deal process by synchronizing investment activities. Some of this comes from accredited platforms, such as AngelList and SeedInvest, which innovate new deal structures and connect smart angels electronically.
- Standardization of deal documents is reducing legal costs for investors and entrepreneurs. And while there are innovations in convertible notes or “safe” deals, most of the savings are likely to be in preferred stock deals.
- The exit market – both M&A and IPO – will continue to strengthen. Many investors need liquidity after years without good exits. This is creating a laser focus on exits they can visualize happening within the next three years.
- There will be continuing pressures for valuations to increase, with the biggest impacts in Silicon Valley and Boston, but with the impact spreading to other parts of the country. This isn’t good news for angel investors. However, this may rebalance later in the year if bigger VCs begin to pull back on valuations and smart early-stage investors focus on companies that deliver strong value.
Changes in Who Invests and Where Will Change the Face of Angels
- Increasing numbers of people in their 30s and 40s will get involved in angel investing, in angel groups, accredited platforms and informal networks as they get entrepreneurial or professional experience and learn about angel opportunities. Many current angels will happily provide mentoring and advice to them to help them start investing smartly.
- Women will grow in significance as angel investors, leading to more capital and mentorship for female-led startups. Women are about 20 percent of all angels, and that percentage is slowly but steadily moving up. Organizations like GoldenSeeds and Pipeline Foundation will keep building their programs to educate women new to early-stage investing.
- Metro market hotbeds for entrepreneurs and investors will continue to expand geographically and offer entrepreneurs even more quality support – with nice and early exits for angels in non-Silicon Valley markets. Washington DC, Cincinnati, and Kansas City are among the many emerging hotbeds for innovation and entrepreneurial growth. More “flyover” areas (AKA places VCs travel over when they fly from one coast to the other, but rarely visit) will spawn successful companies.
The Early-Stage Ecosystem Will Grow as an Opportunity Magnet
- An expansion of early stage support activities will lead to an increase in the number of innovative, high growth startups. Not only will there be more incubators and accelerators, but universities will increase their emphasis on entrepreneurship programs and commercializing academic research in startups.
- People who support entrepreneurs are building more connected networks among each other, providing a more complete support environment for entrepreneurs and leading to better opportunities and success for investors. On the investment side, accelerators, angels, and VCs are building the kind of positive relationships that lead to entrepreneurial success, minimizing gaps between funding rounds in some cases.
Selective Industry Sectors Will Become Even More Popular
- Industry sectors will matter a lot, with some seeing tremendous growth and others not so much. Allan May, founder of Life Science Angels, provides a few examples. “Biotech investing is on fire,” May says. “And digital health and mobile will see 100 percent plus growth as the system continues to experiment on how to use this technology to lower health care costs, promote behavior change and improve patient compliance. On the other hand, more of the US medical device sector will move offshore, as they find better environments for funding, clinical trials and commercialization.”
- Sector “verticalization,”is coming into its own. Some angels are seeing situations where accelerators, angel groups, and platforms are specializing in specific sectors such as hardware, education technology or green technologies. As Christopher Mirabile, vice chair of the Angel Capital Association notes, “For a long time we have seen groups devoted to life sciences or clean tech, but we are now seeing groups focused on specialty areas like the marijuana industry.”
2015 is sure to be a year of innovation and growth for startups and angel investing – and we haven’t even covered the potential huge impact of legislation or regulatory policies under consideration. In this rapidly evolving ecosystem it’s more important than ever to connect with other angels to learn and refine your investing approaches for continued success.