Business Magazine

6 Reasons Startups Need All Angels Plus Crowd Funding

Posted on the 16 December 2017 by Martin Zwilling @StartupPro

crowd-fundingEntrepreneurs who require funding for their startup have long counted on self-accredited high net worth individuals (“angels”) to fill their needs, after friends and family, and before they qualify for institutional investments (“VCs”). The many crowd funding platforms on the Internet, led still by Kickstarter and IndieGoGo, and the latest stages of the Jobs Act, were expected by many to put regular people in charge of funding new opportunities, and kill the need for angel groups.

I still don’t see it happening any time soon. Neither does David S. Rose, according to his latest book, “Angel Investing.” David is one of the most active angel investors in New York, and also the CEO of Gust, which is an online platform for startup financing used by 500,000 entrepreneurs over the years, and funding over 1800 startups in just the last 12 months.

In fact, angel investing seems to be leveling off at around $25 billion annually, while crowd funding is setting new records, expected to top $34 billion in 2017. Of course, both are impressive and both already exceed VC investments annually. Nevertheless, according to Rose, both are poised for further growth due to online technology, and there is indeed plenty of opportunity.

He does caution both entrepreneurs and investors to skip the hype and recognize the fundamental truths of the startup industry, before joining the crowd, or joining angels:

  1. Most startups fail. Small business statistics have long shown that the failure rate for startups within the first 5 years is higher than 50 percent. Running out of money, or not getting funded is often given as the cause, but it’s often more an excuse than a reason. Thus investing in startups should always be approached as a low odds game.

  2. No one knows which startups are not going to fail. Even David Rose, who has invested in over 90 startups, and proclaims real success, reminds everyone that there are too many exogenous factors affecting business outcomes for anyone to be able to pick only winners. Professional venture capitalists will tell you the same thing.

  3. Investing in startups is a numbers game. Most startup investors today will tell you to put the same amount of money consistently in at least 20 to 25 companies, if you hope to approach a target 20 to 25 percent overall return. This is called the “portfolio approach,” which counts on hitting only a couple of big winners, while the others return very little.

  4. What ends up, usually went down first. Because unsuccessful startups tend to fail early, and big successful exits tend to take a long time to develop, graphing growth follows the classic J-curve. This means that winning investors need to spread their investments across a long period of time, as well as across a large number of companies.

  5. All startups always need more money. It doesn’t seem to matter what the founders’ projections are, or how fast they believe they will turn profitable. They will need more money. Thus every serious investor reserves a certain amount of his investment capital for follow-on rounds, which allows them to stay to course to success, even with dilution.

  6. If you subscribe to truths one to five, startup investing can be lucrative. There is a rarified brand of successful investors who can show average IRRs of 25 percent or greater over the years. Investing can be satisfying, if not lucrative, for the rest of us, for keeping up with technology, as a give-back to entrepreneurs, and building a legacy.

Angel investors have long been required to "certify through signature" that their net worth or income qualifies them to become accredited, so their burden and risk haven't changed yet. Some investors fear that the recent general solicitation rule will lead to bank statement or tax return disclosures, increase their burden, and may cause qualified angels to back out of the process.

Angel groups fear the loss of members for the same reason. Here again, the entrepreneur will be the one hurt most, by having fewer funding sources to access. I predict that angel investors, who are generally early adopters, will actually be quick to adapt to the new requirements and online systems, and will operate side by side with the new influx of non-accredited investors.


You Might Also Like :

Back to Featured Articles on Logo Paperblog

These articles might interest you :

  • Team of European and Middle Eastern Women Ski to the North Pole

    Team European Middle Eastern Women North Pole

    A team of adventurous women from Europe and the Middle East completed a last degree ski expedition – which calls itself the Women's Euro-Arabian North Pole... Read more

    The 26 April 2018 by   Kungfujedi
    OUTDOORS
  • Deaddicting Yourself

    Deaddicting Yourself

    Do you have a habit that you want to get rid off but are so addicted to it that you have no idea -How To Do That? Do you realize that a particular trait is... Read more

    The 26 April 2018 by   Chetan
    SELF EXPRESSION
  • Design Diary: Scandinavian Style Kitchen Renovation by Helios Design Group

    Design Diary: Scandinavian Style Kitchen Renovation Helios Group

    I write a lot of one page design columns for Boston Globe Magazine. This one, published last fall with photos by Jared Kuzia, is one of my favorites. Read more

    The 26 April 2018 by   Stylecarrot
    FASHION, HOME, INTERIOR DESIGN, LIFESTYLE
  • The Hipster

    Hipster

    According to Wiki, "The hipster subculture is stereotypically composed of younger and middle-aged adults who reside primarily in gentrified neighbourhoods. Read more

    The 26 April 2018 by   Ashleylister
    BOOKS, CREATIVITY, CULTURE, SELF EXPRESSION
  • Airbus A330-200, Iberia

    Airbus A330-200, Iberia

    @ San Francisco, CA April 2018 Iberia flight 6175 on final approach as it nears completion of the inaugural flight from Madrid, Spain.  This marks the start of... Read more

    The 26 April 2018 by   Htam
    PHOTOGRAPHY, SOCIETY
  • Himalaya Spring 2018: Collapse in Icefall Injures Two Sherpas

    Himalaya Spring 2018: Collapse Icefall Injures Sherpas

    As if the climbers, Sherpas, and porters on the South Side of Everest got a sharp reminder of the dangers they face yesterday when a section of the Khumbu... Read more

    The 26 April 2018 by   Kungfujedi
    OUTDOORS
  • Questions Not Normally Asked by Golf Beginners

    Questions Normally Asked Golf Beginners

    Learning all there is to the game of golf isn't easy - aside from attaining a repeatable swing, selecting the right golf clubs and cultivating proper... Read more

    The 26 April 2018 by   Golfforbeginners
    GOLF, SPORTS

Magazines