We asked our super angels about their experiences investing in 2021, and their expectations for 2022. Here are some of the investing trends that emerged from our survey, along with some excellent words of advice for investors and entrepreneurs.
Experiences in 2021.
More remote investing.
70% of respondents said they made a first time angel investment without meeting the entrepreneur in person: an increase on the 50% who said they had done so in 2020.
High valuations, high quality deal flow.
Asked what surprised them most about angel investing in 2021, the most common answers were that valuations were extremely high – which some attributed to an increase in American investment – and that there was very high quality deal flow. Some investors were also surprised that companies were able to recover so quickly in the wake of the challenges posed by the Covid-19 pandemic, while several commented on the surprising amount of capital that was available for investment.
Changes in investment habits.
Overall, most investors said that their experiences in 2021 had not changed how they would invest in future, but some said that the increase in valuations had made them more selective about what they chose to invest in, and that they would look to take money off the table for later stage rounds. Others observed that they had invested more non-locally as face to face interaction with founders became less important, with some looking outside of the UK.
Asked which 2021 trends investors hoped would go away in 2022, the most common response was the increase in high valuations. Some connected this to an increase of VC investment in earlier stage deals driving valuations up. Others also commented that COVID-related bolt-ons had, in some cases, divided companies’ focus.
2021 trends which investors hoped would continue included an increase in sustainable investment opportunities and an increase in ethnically diverse and female founders receiving backing. Respondents identified a number of areas which had seen good development in 2021, including health and wellness tech, femtech, and the use of collaborative platforms to improve access for investors. Several respondents commented that the move to online meetings and virtual tools had significantly increased productivity, as well as seeing more board members from overseas join meetings, although others felt that an over reliance on virtual meetings meant that some of the advantages of face to face meetings were lost.
Expectations for 2022.
Asked which industries were expected to see the biggest growth in investment in 2022, the most common answer was healthtech, followed by green tech, crypto and ed tech.
Investors identified the key challenges ahead in 2022 to be inflated valuations and the potential lack of alignment between these and exit values, an increase in VCs becoming involved in earlier-stage deals, including former Series A funds that are now moving to focus on seed and pre-seed rounds too, and the continued challenge of filtering out the best companies.
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We asked the angels what the main motivations were that kept them investing. Naturally, financial gain was a popular response, followed closely by close involvement with innovation and intelligent entrepreneurs, and helping the next generation of talent to succeed.
Advice for new angel investors.
New investors should have a firm understanding of the risks involved, but should also understand that they don’t need to be wealthy to become investors, our angels told us. They should look to gain as much insight and advice from experienced angel investors as possible, but should also have the courage to take the first step, on the basis that the best way to learn is by doing. Several recommended consulting angel syndicates in order to track the best angels and their behaviour, and many warned against investing via crowdfunding platforms, due to the potential for investment in substandard businesses. Several others said crowdfunding platforms already made it easy for new investors, possibly too easy, given the potential pitfalls of these platforms.
For those just starting out, the main pieces of advice were: do plenty of research, don’t rush, partner with experienced people, start small, and moderate expectations of success. Investors should meet founders regularly and get regular updates, instead of investing and waiting to hear more.
Instead of starting with one investment, investors should ensure they’ve allocated enough money to make multiple investments, between 10 and 20. Finally, they should learn to trust their instincts. Joining the UKBAA is a useful step to help investors gain access to as many other, experienced investors as possible.
How do angels think?
Finally, we asked our angels to tell entrepreneurs one thing about how angel investors think. The most common response was that angels value alignment between entrepreneur and investor very highly, and that on this basis, entrepreneurs should choose angels wisely, as the right angels can help, but the wrong angels can prove a hindrance. They also noted that experienced angels are very good judges of character, so entrepreneurs should be open and authentic.
“They want some engagement. Take the time to write that quarterly update - and done well it should help you lift your head up a little and think about the business.” - A SyndicateRoom Angel
Angels are very focused on what makes the founder tick, more so than on how the business works in some cases. With this in mind, many angels are more interested to hear answers to the ‘why’ questions than to the ‘how’ questions. They need to make decisions on very limited data, so they prefer it when entrepreneurs ensure the data they present is relevant. Finally, angels are often willing, if not eager, to give their time freely to entrepreneurs that they feel are receptive, and to this end, courtesy and prompt responses go a long way.
“Don't raise too much too early. You will dilute your equity at a lower valuation. Just raise what you need for each milestone. When you have funds spend the money extremely wisely. Focus on getting profitable as soon as possible - too many entrepreneurs think they can continuously raise new funding. If there is a wider liquidity crisis in the economy, a business making money is far more likely to survive.” - A SyndicateRoom Angel
We hope that this provides a useful and encouraging beginning to your 2022. Click the links ahead to find out more about our fund, Access EIS, and to follow us on Twitter. As always, if you have questions and would like to speak to us, you can call us on 01223 478 558.
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