Two years have passed since Christopher Hitchens died and I think we do miss him as the free thinking public intellectual that was able to both engage and offend people across the political spectrum.
Flipping through his autobiography, Hitch-22, I found these words from him, words where he captured his feelings about the fate that befell him way too early:
The clear awareness of having been born into a losing struggle need not lead one into despair. I do not especially like the idea that one day I shall be tapped on the shoulder and informed, not that he party is over but that it is assuredly going on - only henceforth in my absence (…) Much more horrible, though, would be the announcement that the party was continuing forever, and that I was forbidden to leave. Whether it was a hellishly bad party or a party that was perfectly heavenly in every respect, the moment that it became eternal and compulsory would be the precise moment that it began to pall.
Something to reflect on today.
Nick Gillespie has a great post rounding up some Hitch memories and thoughts.
Here at the main page I will post my regular updates and longer posts about things that keep me busy. In the meantime I am adding photos and what I consider to be historical worthwhile facts in the 'Photos' section which will see changes on an ongoing basis. I just added a piece on Rotterdam, with a photo I took back in early 2012 so it will not show up on top as entries in the photo section are ordered by date. I will just make a point of alerting the readers to new stuff and if it all gets too bulky maybe set up a separate page with posts that are focused around history.
Anyway, enjoy the site. If it does not work from a reader's perspective in terms of navigation or readability, let me know.
The Inevitable Evolution of Angel Investing
Digesting the news, I very often cannot but help think that angel investing is the next bubble that is unfolding in front of us. Having lived through the stock market and dot.com boom of the 90s, the real estate boom and the commodities boom that started to peter out over the last few years (remember gold at $2000?), the question has indeed been, what is next? Emerging as a fairly specialist area for accomplished entrepreneurs with the means to support new tech companies, angel investing has now gone mainstream. The evidence for this phenomenon is all around us, witness the many groups, forums and now an online Angellist as the go-to place to source new deals and find angel investors. Judging from the participation at various events, the angel investor of today no longer meets the specifications of the original thing. No, the ranks of Silicon Valley millionaires are now joined by lawyers, doctors, unemployed corporate executives, professors and housewives tapping into their home equity lines. At a recent forum one of the organizers claimed she had ‘borrowed money from her dad’ to invest in a not to be missed deal. All of this is further fueled by TV shows like The Dragon’s Den or celebrity angels like Justin Bieber and the NYT telling us that in Silicon Valley the dollars keep growing on trees for new deals, good and bad.
The deeper reasons behind this phenomenon are threefold I think. As mentioned earlier the fact that money is still cheap and other booms have run out of steam, it is only a natural reaction to seek out a new asset class that is somewhat isolated from the vagaries of public markets while promising potential upsides that are no longer to be had in more conventional markets. Or at least, that appears to be the common train of thought among angel investors who are more than willing to trade high risk for the prospect of healthy and possibly outsized returns.
Equally important is how both the financial crisis and the rapid globalization of our economies have brutalized the corporate rank and file. No more guaranteed careers with gold plated pension plans, no, journeys on the corporate ladder are now very short experiences and an early exit package enables many a former exec to buy into the early stage angel game and in the process develop a new career, I know all about it. Finally, the relative ease with which it in now possible to pump out mobile apps and online platforms makes the barrier to begin a start-up lower, not just for young tech savvy kids, also the more seasoned former bus dev guy from IBM can now without too much effort call himself a ‘founder’. It is revealing to note that even in my own “middle-class suburban million dollar home average age fifty” community many a resident now professes to always have been an ‘entrepreneur at heart’. Of course, the well-paid corporate career was just a minor interruption in that journey of self discovery. And yes, he’s raising a little bridge, interested?
The sheer glut of start-ups that has resulted from all of these concurrent developments have forever changed angel investing in a way that most of its participants have not yet fully grasped, at least that is the feeling I get when I hear where some cheques are being written into. The high-risk nature of the early stage game has always necessitated above average returns in order to compensate for the many failed investments that litter any angel portfolio. Do not press me for a rate, but chances are that out of a portfolio of 10 angel-financed deals only one will go to a successful exit, if that. In general you can write off the majority of your angel portfolio to zero and pray that one or two will give you the kick-ass return that not only compensate for the loss but give you some level of upside over the years the funds were trapped in angel land.
As it happens nowadays, I do fall asleep at angel gatherings or pitch evenings or beer demos or whatever they are called. It is not that they lack enthusiasm or energy, it is that there are not that many compelling propositions that actually solve a problem or really address a market need. The bulk of deals presented to angels are just not worthy of investment dollars, but that does not stop them from finding newly minted angels that are all too willing to do just that what they should absolutely not do. I will not throw around some lame jokes about ‘market engagement platforms that generate big data’ or ‘ethical reward coupon apps’, but you get the drift.
So what that means is that an ever lowering barrier to build companies and an ever increasing number of angels funding new deals that hopped over this low barrier must further reduce the odds of winning. In other words, more but less sophisticated money is chasing ever more deals that are increasingly average. Read that last sentence again and you know what I mean: there will be tears down the road.
Angels however have become smarter - the ones that lost earlier and have the stomach for another kick at the can - and have started to hunt in packs. One of the lessons learned was that most end up with a minority stake in deals that would have had a chance of survival had the angel investors combined had some sort of majority stake or level of control. My two angel funds have taken an approach that seeks to address this, but at the same time both funds have only managed to make one investment each this year, a time when there is both a glut of money and deals. Ergo, the money remains in the bank.
So, does this mean that angel investing as originally conceived – the 100x for a groundbreaking piece of technology – has run its course? It is hard to say with certainty but my findings do point to an increase in smaller deals that are less exciting, less global in scope and potentially able to go from start to exit with far less capital than was previously the case. Angel investors therefore are now having to adjust to become smarter and invest in smaller deals that have a good chance of success, but where the eventual return may come in the form of modest dividends or an exit at the $10 to 20 million level rather than the $100 million meal ticket. Is this an attractive scenario for investors? I do think so, but it requires an adjustment in expectations, smarter investment strategies and a more hands on approach as investor.
There is an angel bubble, definitely, but it won’t pop. It is just changing in size and form as we go along, all it requires is that we become smarter and pay more attention to how we deploy our efforts and funds.
This is my weblog and as opposed to the earlier one I ran years ago, this is not one about just politics and markets.