There is a national trend in angel investing as angel investors continue to retreat from seed and startup stage deals and seek ventures with more established track records. Contrary to the public musings we’ve seen in Milwaukee, it’s not a local phenomenon nor is it caused by Wisconsin “cultural issues.”
It’s simply a factual description of trends reflected in national angel investment data.
GA has historically participated in the Center for Venture Research Quarterly Study for the past 15 years. The latest report, “The Angel Investor Market in Q1Q2 2017: An endangered Seed Stage,” by Jeff Sohl, is here.
The purpose of this note is to offer for long term consideration the necessity to maintain robust deal flow and to lower risk where possible without losing all opportunity to invest.
(My favorite Mark Twain autobiography quote : “I was seldom able to see an opportunity until it had ceased to be one.”)
First, the facts. Our Golden Angels investments in 1Q2Q 2017 exactly mirror the report's findings. We invested about $3MM in this period (1Q and 2Q 2017).
None of it was seed or early stage.
It’s interesting to note that in three of these we’d not have had the opportunity except that we were seed investors. One company was a slide deck when we invested; another was a pre-revenue company with a very early product and a third had a few customers and almost no revenue.
Sohl points out that inflated valuations and a robust public market may be part of the reason for this phenomenon. Whatever it is caused by, it’s a fact. Over the long term, either investors find ways to maintain this flow of opportunity or run the risk of losing out.
One of the concrete steps we’ve taken in this regard is the expansion of our venture day program. In our recent 4Q 2017 FinTech program, we invested in five companies, of which three were early stage with no revenue or prior investment. Two are later stage with early revenue and prior investment. The venture day had the effect of adding concentration of company experience and expertise in the room which led us to be able to make these investments.
We created a fund for the companies chosen after presenting on the day, and we had the added benefit of diversifying our holdings and being able to reinvest if we chose.
Pressure to invest in very early startups continues, of course, so another step we’ve continued to use is to meet with many companies. Our practice continues to be seek out these meetings and as appropriate, bring them to the deal committees, and where practical, to offer longitudinal assistance prior to an investment. We use our network of 200 people to make that work.
The idea here is more than screening.
As an example, we introduced a local entrepreneur to a portfolio company of our VC partners in California. I thought their app might be a good fit. Testing is now underway. This makes the startup more investable, potentially, and gives us an opportunity if things progress.
We take dozens of meetings every week. Just yesterday, the list included meetings or calls with two AgTech companies; a medical equipment company; an EdTEch company; an MCW startup backed by Peter Thiel and others; and a fish farm.
We often propose high potential ideas for our group consideration, but with the risk reducing practice of further diligence and, where appropriate, evidence of customer acceptance. This takes more work than a “take it or leave it” approach, but based on experience, has the potential to yield better results.
The conclusion of all of this is that we recognize that for now our investing patterns are following national trends and we continue to look for solid, backable early stage opportunities that may be higher risk but also higher upside. We are strengthening our venture day strategy heading into this fall’s AgTech event.