11 years, 1 month ago

Whence, Angels?

As you’ve read over past couple of years, we’ve started investing in a hybrid Angel/VC model.  Lots of risk, lots of upside, and lots of fun new things to learn.  Applying Capability Driven Methods to management from the start has been both fun and instructive.  We have received a lot of positive feedback, and our deal flow is not lacking.  And as you’ve seen in our work with Business and Enterprise Architecture, we’re not shy about sharing our thoughts on the subject at hand.  So here’s the first of several topics that we’re thinking about:

Need for more Angel Investment

Statement 1:  Proportion of people who have W2 jobs has declined from ~70% of the workforce to just under 44% of the workforce between 1980 and 2012.  Read: There are roughly 35 MILLION more workers today who are on 1099 terms.  Some of them might be looking for capital.

Statement 2:  There are very few accredited investors who can serve as angels.

According to BusinessWeek, in 2008 there were:

  • 5 to 7.2 million US adults who were accredited investors
  • 528,000 to 756,000 accredited investors who made a friends-and-family or angel investment in the past 3 years

Under Dodd’s finance bill, the second range would fall to 121,000 to 174,000.

And another data point:

Capgemini’s 2011 World Wealth report states there were 3.4MM N. American residents in 2010 with investable assets of $1MM or more.  The report is available online but requires registration.

Statement 3:  Angels will rarely act as Angel Investors.  With the sheer volume of deal flow, people who have capital have the pick of the litter.  If they can put their money into a company with 3 years of history and $2M of annual revenues, rather than a company with a napkin and a dream, and get similar proportion of equity, why would you expect them to take a significantly higher risk?

Bottom line:  Access to capital is far more competitive today that it was even 10 years ago.  Will crowdfunding be a panacea?