Two recent news articles that caught my attention in the last few weeks have confirmed my personal opinion that angel investing has changed considerably from when I first became involved in this type of investing. Perhaps changed forever and perhaps changing faster than many are expecting. I have 15+ years of experience in angel investing—-I did my first angel investment in 1996 before it was called “angel” investing and am still making investments in private companies as well as local VC funds. I ran the Atlanta Technology Angels as Executive Director (and investing member) from 2002-2010 and BOD member 2002-2012, and served on the Board of Directors of the Angel Capital Association from 2007-2010. I am now a member of the AIM angel group, the co-Chair of the Georgia Venture Capital Coalition and the founder of the Georgia Crowdfunding Community.
The first article gives an example how angel groups are increasingly investing outside of their local geographic areas of influence and knowledge. The second article shows a concern that the SEC will, once again since 2010, change the criteria of an accredited investor. Both of these issues have been seemingly sacrosanct in importance over the years that I have been involved in angel investing. “All angels invest locally where they can drive to inspect the company they are investing in.” and “The definition of an accredited (angel) investor has largely been intact since 1933 and is unlikely to change.” Heard those, right? Yep, me to. I’ve even used those myself in the past.
Nothing changes–until one day, it does.
Along with the above articles, here is my thinking of how the “traditional” model of angel investing is changing (or already has changed):
1.) JOBS Act
The SEC and FINRA quietly posted two notices last week during the 4th of July Holiday. Both government departments are moving forward on the JOBS Act rules and regulations. The next wave of unaccredited “average joe angels” are coming–and they number in the millions.
2.) Intrastate Crowdfunding
Georgia and Kansas now have State Securities rules and regulations that allow private, for-profit companies in those respective states to raise capital through capital raises from unaccredited investors. Yes, this is state based crowdfunding and it is completely legal for both unaccredited and accredited investors. North Carolina has a bill in the NC General Assembly for legal instrastate crowdfunding in the current 2013 session–and it may pass. Other states are considering similar legislation or rules and regulations.
Georgia has a burgeoning “Invest Georgia Exemption” infrastruture” starting to build. The next 90 days in Georgia and North Carolina are going to be exciting.
3.) Battle for the “Accredited Investor”
I’ll go on record here and predict that there will soon be an epic battle nationwide for the market share of accredited investors. Why? The “No-Action” letters recently given to Second Market (who has a partnership with AngelList) and FundersClub. Both are clearly intending to be first movers, are well funded and are likely going to concentrate on marketing to accredited investors—across the nation. And, they will use the JOBS Act Title II–which will enable them to advertise to these investors legally and on all advertising mediums. For example–If I am an accredited investor in Georgia-I will now be advertised to in a legal fashion to invest in private companies across the nation. Is an angel investor in Georgia going to take a chance on a Boston or New York or Silicon Valley company? You betcha. Will this reduce the amount of “local only” Georgia angel capital going into local Georgia businesses? Probably. Will those same local Georgia companies have access to a national angel audience? Yes.
Angel Group Syndication has been quietly going on for years. It is increasing in acceptance by most angel groups and is continuing to grow in popularity. Here is a great example. Why is this important? The ability to invest in companies outside of local geographic areas just wasn’t efficient 10 years ago. With the advent and growth of groups such as the Angel Capital Association and others, individual angels and angel groups across the nation are getting to know each other in a variety of ways and investing outside geographic areas of influence has become more accepted and efficient. Local investing only by local accredited angels is going the way of the Tasmanian devil.
Note to entreprenuers: Local angels are great, but remember to ask about syndicate partners.
5.) Changing criteria for definition of an accredited investor. (Above)
The SEC, in 2010, changed the definition of an “accredited” (angel) investor by excluding the individual’s primary residence. This was the first time since 1982 that the SEC has reworked the accredited investor criteria. The SEC has the ability starting in July, 2014 to review the accredited investor criteria again and make changes without going back to Congress. Why is this important? Any increase in criteria is likely to substantially reduce the number of angel investors in the USA.
That’s enough for now. Don’t want too many darts thrown my way from my current and former angel investor brethren. However, I’d love your feedback. Am I right? Wrong? Misguided? Looking for a fight?
See you in the market!