Frustration is one of the most significant emotions investors are feeling these days. Even though the Dow Jones Average has increased from a March, 2009, low of 6,440 to over 17,000, many investors are looking outside traditional markets.
Results reported in a RockThePost survey* reflect a lower percentage of fixed income and mutual funds than 10 years ago.
- 25% more startups
- 25% more private equity
- 31% more real estate
- 27% less bonds, CDs, MMAs
- 20% less mutual funds
Attracted by return potential, the excitement of working with startup companies, and changes in the legal environment created by the JOBS Act, one opportunity investors are flocking to is angel investing.
Reaching $23 billion invested in 2012 — a record year — angel investment not only funds more than 67,000 startup ventures annually, but also contributed to financing 274,800 new jobs** in 2012 alone.
Support systems aid investors in decision-making
According to Peter Adams, director of Denver-based Rockies Venture Club, “Angel Investors, Angel Investing Groups and Venture Capitalists now are more often collaborating and syndicating on their investments. This means that there are typically two or more, and as many as 20 or 30 parties collaborating on due diligence, negotiation and managing the investment.
“In order to facilitate collaboration and syndicated investment, groups often use software platforms to ease collaboration by storing all of the information in one place. There are several advantages to this, including general organization, ability to bring new investors along in the middle of a deal and get them up to speed quickly, and communicating due diligence research results,” Adams said.
Online platforms aggregate and coordinate information
There are several platforms out there, according to Adams, including Gust, AngelList, and SeedInvest. Members of the Angel Capital Association use Gust to coordinate their information and to syndicate with other angel groups using the Gust platform. By sharing a “deal room” with other groups, angels gather together to provide sufficient funding to close out an investment round quickly and efficiently.
Due diligence is an important part of successful angel and VC investing, Adams asserts. There are a number of databases, such as Crunchbase and VentureDeal, that provide information about companies as well as “comps” to see how comparable companies are doing. Angels and VCs use due diligence (DD) checklists to make sure they leave no stone unturned in the process.
DD checklists include information about company finances, founder personal finances, criminal backgrounds of founders, and relationships the company has with all strategic partners. The DD team is tasked with asking questions, visiting the company site, and reporting their findings back to the group.
Tools make it easier
Pitches help investors learn about opportunities with special attention to leader coachability, team experience, fit with investor strategic objectives, market opportunity, and disruptive potential.
Some angel and VC groups use personality tests to identify whether the CEO and executive team have a culture fit with the investor group. Some of these tests claim to be able to identify high success leadership qualities and to identify strengths and weaknesses in the team. The Venture360 platform includes this within their due diligence section.
These templates for valuation or modeling dilution through multiple rounds of funding allow investors to project what their return on an investment might be under different circumstances.
Other alternatives emerge
The JOBs Act has provided additional opportunities for both investors and companies seeking financing. Watch for additional P2BInvestor blogs on more details about emerging regulations, opportunities, and ways you can get involved.
* Rockthepost Report, 2013 more info at www.rockthepost.com
** Angel Market Analysis, Center for Venture Research, University of New Hampshire