A couple folks asked me recently to give an update on angel investing both in Georgia and nationwide as I see it. The last post I did on this topic was in February, 2009. My, how time flies. I’ve recently left my position as managing director at the Atlanta Technology Angels but I still remain on the Board of Directors at both the Atlanta Technology Angels and the Angel Capital Association. I continue to speak to angel investors all across the USA (and hear from UK, much of Europe and New Zealand and Australia) so my information should remain timely and up to date. In this post, I’ll probably talk Georgia-specific but also mention some national trends.
Please note that all thoughts and comments on this blog are mine and do not reflect the thoughts or comments of any outside organization.
1.) Current Investing
Much of the current investing activity in Georgia is going towards companies previously funded in the 2005-2008 timeframe. Very few new companies are getting funded by angels in late 2009. I know of a couple of new term sheets out to new companies in ATL and I know of a few companies that have just completed long term financing rounds, but I hear the “raise” for new companies is taking more time and is a source of frustration. Here’s why I think this is happening:
- Angel investors, depending on the individual and/or entity, have had a reduction of assets/liquidity due to the equity crash of September, 2008. This reduction may be 5%-15% or it may be 50%. The 5%-15% ‘ers are still looking, the 50% ‘ers are gone from the market. However, the 5%-15% ‘ers are still cautious (despite the 60% reflation of the S&P/Dow) for another downturn. So, many angels are protecting their current early stage investments by reinvesting into current portfolio companies to make sure these companies can last another 12-18 months. On a national basis, I’m seeing this same tactic across the board. The only exceptions to this are angel groups that have raised funds($2m-$5M) or groups in very active markets such as San Francisco, Los Angeles, or a very few NE markets. (More on angel funds later.)
- The angel market is in a state of flux in Georgia. New leadership at the Atlanta Technology Angels, the gradual withdrawal of Imlay Investments from the market, the addition of a Y-Combinator play (Shotput Ventures), the slips and slides of creating new angel groups in other Georgia markets, and Angel Lounge trying to find its voice all have combined to make life both exciting but somewhat confusing for entrepreneurs looking for funding.
-No Exits. I’ve been saying for a couple of years now that if there are no positive exits (or conversely, failures/bankruptcies) for current angel investors, the angels cannot recycle the previously invested cash they receive from a postive sale, M&A or IPO. And, no exits mean no “new” angels (or very few). If there are no exits, no recycled capital and no new angels, a stagnant economy is unintentionally created. Sound familiar? Yep, look around you at the economy. All the new money is from the Fed. How to help this situation? See #3 and #5.
-The era of Free Money……is over. See #2.
Valuations seem to have gone way off course. They are at stubbornly high 2007 levels–and have seen an increase in last 3-6 months. It seems as if there is no in between for the companies raising cash. Believe me, this is as frustrating for the angel investors as it is for the entrepreneurs.
3.) Angel Group Syndication
4.) Deal Flow
Deal flow has lessoned considerably this (3rd) quarter. However, there is a backlog of new companies that many angel groups are working through. I imagine that with the release of Capventure companies Tuesday night, Atlanta will see an uptick in dealflow for the short term.
5.) Tax Credits for Georgia Angel groups
Many of you know that a tax credit for Georgia early stage investors has been a long term project of mine for 5 years. Let me tell you, it hasn’t gotten any less important for me or for the State of Georgia. The reason North Carolina/RTP is cleaning our clock in funding young tech companies? Tax Credits. North Carolina has had tax credits since 1996 and now has two NEW angel funds of $5M each–all due to tax credits. As soon as GA politicians and GA old boy networks learn that tax credits aren’t just for the favored few, the better off Atlanta/GA is going to be.
That’s all for now. Happy to answer questions, if any. More posts later in October.