
Where Have All the Angels Gone? - gk1
https://tomtunguz.com/where-have-all-the-angels-gone/
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yeldarb
At least for me, a big part of it has to do with the shift almost entirely to
convertible notes.

When I made my first angel investment ~10 years ago almost every opportunity
was priced. Now almost everything is a note (either with a very high cap or no
cap and a small discount).

I like to know what I’m buying.

And if a startup is saying they’re going to grow 1000x in 18 months but wants
to cap my return over that timeframe at 20% that seems like a raw deal
considering the very high risk that they won’t be able to raise at all.

I applaud them for being able to get it done. But it’s been 2 years since I’ve
made my last angel investment. I’ve allocated that money to stocks instead.

~~~
empath75
What kind of net worth should you have before considering angel investing?

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JumpCrisscross
> _What kind of net worth should you have before considering angel investing?_

Thumb in the air, angel investments should be no more than 2 to 3% of your
liquid (sellable, with minimal price disruption, within 90 days) investable
assets. (One should also be an accredited investor.)

So if you're cutting a $10k cheque, you should have $500k socked away in
liquid investments and $1 million in total assets. If you're cutting two $25k
cheques, you should be investing out of a portfolio of ~$2 to 3 million.

~~~
mruts
You probably want 10 or 20x of that. Assuming your bets are uncorrelated and
all have the same standard deviation, the standard deviation (volatility) of
your portfolio is going to be:

stddev_portfolio = sqrt(n)*stddev where n = # of investments

Personally, I don't think I would be comfortable with the risk unless n > 25
or something around that.

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bkohlmann
I think it’s likely attributable to financial returns of angels.

One of my business school professors was a prolific angel investor. I asked
him about his returns and he laughed. He said it wasn’t about the returns - by
the time he cashed out, he was so diluted (or enough failed) that the ROI was
far less than an index fund.

What it did give him was social capital - to say he was an angel in a famous
unicorn was immensely valuable to him.

Unless you’re already rich, social capital doesn’t pay the bills.

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codingdave
As angel rounds can very well be 100% private deals, I have to question how
complete this data is.

I can certainly believe that in the "Startupland", as they call it, seed
rounds are changing. But that isn't the whole industry. Because at the same
time, there is growing pushback against VC investment for small software
companies, and growing pushback against the "grow fast or fail" mentality.

I know of multiple angel-backed projects just in my small town over the past
couple years, that have zero news coverage. Admittedly, my small town is a
bedroom community for a tech area, so we have more than your average number of
software professionals here. Still, if you tell me the half dozen projects
going on in my small town is outpacing the entire state of Texas... I just do
not find that plausible.

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utdiscant
I don't have any data, but I feel the sentence "Angel investors, on the other
hand, seem either to be walking away or raising an institutional seed fund of
their own." is one of the likely explanations.

In Denmark (where I live), most angel investors seem to have syndicated
together in collectives, micro-funds and other forms of investment vehicles.
This reduces the number of angel rounds on paper, but I guess a lot of the
angel investments are still hidden in small funds.

One hypothesis is that it could be due to the increased size of the first
investment rounds for new startups. I do believe it will make it harder for
the very interesting and risky cases to succeed because instead of convincing
one visionary individual, they have to convince a small fund with a management
structure, a board, and an associate.

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JumpCrisscross
Funny question to be asked on a Y Combinator property. Angel investors were
the cottage industry financial gears of the early venture landscape. As
Silicon Valley matured, the factories ( _i.e._ Y Combinator _et al_ ) got into
gear. These "factories" can offer better terms--overall--in large part through
their scale ( _e.g._ alumni networks, demo day, _et cetera_ ).

It's a classic maturation story. Angels still have an edge in domains with
philanthropic credentials or where such scaling advantages don't present
themselves, _e.g._ in niche technologies or geographies.

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epc
I stopped angel investing when the “ask” jumped from $25k to $250k. At $250k
I’d just as soon be an LP in a fund and spread the risk (and let the GPs do
the work).

~~~
lpolovets
That's surprising to me. I've been doing 2-3 angel investments/year in Silicon
Valley (while being a full-time VC), and I've never personally seen anyone ask
for a $250k min check at seed stage. FWIW all of my investments are $10k (the
max that my fund allows me to invest on the side), and I don't get pushback on
that 90% of the time.

On a slightly different note, minimums are rarely set in stone. If someone
says the min is $100k and you come back with "ah that's a bummer, I love your
company and think I can help with X and Y, but I can only afford $25k,"
there's a good chance that suddenly the minimum will drop to $25k just for
you. At least that has been my personal experience.

~~~
epc
I’d evaluate up to ten per year but typically only do 2-3 as well, primarily
US East Coast. Fairly consistently, starting in 2015? 2016? the minimums kept
creeping up, until a prospective CEO told me I'd wasted his time (he'd
contacted me) when I said 25k was my limit.

I may return to it at some point but it wasn't particularly lucrative and the
sense of entitlement I ran into just turned me off.

~~~
owens99
That CEO sounds horrible. Don’t let a bad apple ruin angel investing for you.

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tomasien
As a founder on the ground even in late 2015 (NYC), it was very hard to get a
single angel check when we were trying to raise $500k. Ended up raising $2m
from funds instead - which was the right thing but also very weird.

Fellow founders with companies that would have traditionally been at more
"angel" friendly stages have had a similar experience recently - either funds
invest or they can't raise more than $150k. Less true in smaller markets.

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anovikov
That's normal, angels being commonplace 10 years ago was just a sign of
industry's immaturity. Angels deal with post-tax, personal money. They are
naturally handicapped. They existed only as long as the field was considered
uninteresting for institutional players.

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fouc
What we need are angel bootcamps to train up more angels. Anyone can be an
angel investor, but knowing how to be an angel is the real trick.

~~~
bitL
No self-respecting entrepreneur would talk to bootcamp angels! At a minimum,
an M.S. in angel investing from a Top 10 school or preferably a PhD with at
least 5 years of investing in FAANG should be the minimal angel
qualifications.

~~~
kemiller2002
That can't be right. The Angel Bootcamp told me companies need Angels and
there is a shortage. They said I'd even get their course at a discount as long
as I gave half my profits to them for the first 2 years after I graduate.

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lettergram
I think part of it is the increase in cost. I’ve spoken with quite a few VCs
and Micro-Fund managers and generally been told a seed round is $250k minimum.

I can’t see many angel investors investing that much. This is when I can
relatively easily raise that

~~~
xemdetia
I wonder if this is more accurate for what people are pursuing as businesses
as well where the up front costs are just higher. Trying to start a Reddit or
Facebook class site just needs a working server and some basics, where as a
lot of the gig economy ideas/things-as-a-service ideas like Uber or Blue Apron
need more up front capital that can't be solved by just trading sweat for
marketing/growth. Not because that this is the best business idea but I can
imagine a lot of proposals are trying to chase similar things. I'm not saying
that those who may be considered copycats are wrong just that their upfront
costs might be higher. A business starting out that is similar to an Uber or
Blue Apron kills its growth if it has no money.

I have also been hearing about people that are chasing WeWork as well so there
is an upfront cost of facility that is almost explicitly what-not-to-do from
the prior generation startup handbook: don't have an office. If an office is
the product, then what? You do need a bit more money.

It definitely feels like the last few years of startups are chasing very
different goals that an influx of $25k (as suggested here) isn't going to help
enough to solve the overhead of getting that $25k.

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networkimprov
Hm, neither the article, nor anyone yet in the comments, has mentioned
crowdfunding, a.k.a. Kickstarter et al...

This article is old, but shows CF passing angel four+ years ago:

[https://medium.com/startup-grind/trends-show-crowdfunding-
to...](https://medium.com/startup-grind/trends-show-crowdfunding-to-surpass-
vc-in-2016-65df924d8a82)

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not_a_moth
I wonder if it's because 95% of angels lost their money during the peak
periods so have moved on to other pursuits.

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ThomPete
I started a "creative venture studio" back in 2017 and we are mostly investing
through a mix of sweat-equity and cash.

That's actually going surprisingly well. Slowly but surely and I now have a
number of equity stakes in various startups some of them quite promising.

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spac
I find that one potential source of confusion is in the definition of “seed
round” . How many companies actually go from no capital raised to a $2M
institutional round vs. how many raise a so-called “pre-seed” or “angel” round
before the institutional round?

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runT1ME
I would imagine part of it is how much comp has risen for developers. If a
couple founders are trying to raise 50-100k I would wonder why they couldn't
get the cash themsevles by working for a big tech company and being frugal
with their RSUs or by working the salt mines of contract development...

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jcfrei
Seems to me like institutional investors have increased prices for startups
beyond what most angel investors could reasonably compete with. And I would
argue this is due to the ongoing low interest rate environment where investors
are desperate for yield and cash is plentiful.

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smelendez
> Angel investors, on the other hand, seem either to be walking away, or
> raising an institutional seed fund of their own.

I guess I'm unclear what does and doesn't count as an angel investment here.
This would be more useful if it included a definition.

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crimsonalucard
Who says it's just angels? Maybe it's a symptom of the entire economy. If you
told me that curve represented the silicon valley economy I'd be inclined to
believe.

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api
I wonder if the cryptocurrency bubble also soaked up a lot of money that might
otherwise have been playing in the angel investing market...

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dawhizkid
This round of IPOs will for sure create a new class of Angels...already many
early employees who have sold on secondary markets are as is.

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Animats
The weakening of patents plays a big part in this. Early stage funding in
Silicon Valley once was aimed at a working model and a patent. Angels could
afford that. If you have to compete by buying market share, it takes much more
money upfront.

~~~
simplify
How have patents been weakened?

~~~
tjalfi
The Supreme Court Alice Corp v. CLS Bank International[0] decision made it
harder to get a software or business method patent.

[0]
[https://en.wikipedia.org/wiki/Alice_Corp._v._CLS_Bank_Intern...](https://en.wikipedia.org/wiki/Alice_Corp._v._CLS_Bank_International)

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basicplus2
Not enough rapidly expanding bubbles

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vladws
Maybe part of them has invested in ICO and are now waiting for these startups
to grow and return investments.

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rightbyte
The term "angel investor" is so cheesy. It implies altruistic motives, which
are fairly rare in tech compared to say art.

Maybe the shift is due to the ever expanding definition of what a start-up is.
Who knows, maybe the author, but he doesn't specify any sources.

~~~
code_duck
To me, it implies a magic touch. I’d agree that this is in line with some of
our cultural attitudes that glorify wealth.

