What will the next few years be like for angel investors?

imgres-1What will the next few years be like for angel investors?  I have been thinking about this topic a lot.  At this point I have made more than 90 investments over the past 8 years. It has been an amazing ride.  Not only has it been rewarding as well as intellectually stimulating, I have met incredibly smart driven people.

I have no interest in stopping what I do but it is important to take a look at the past while looking into the future.  In the past year I have seen almost two dozen of the companies I am invested in move forward with another round of funding and there are more to come.  Part of my thesis is to participate in those rounds until I hit a certain number where I feel as if I have enough capital at risk.  That number is consistent unless I choose not to participate.  Not only do I have capital at risk, I’ve made it my full time job is spent working with these early stage companies and of course looking at new ones walking in the door.

After 8 years of insane acceleration of start-ups in every vertical I can’t help but wonder what’s left to build?  Of course there are plenty of verticals that will change dramatically with new businesses and thought leaders over the next decade such as healthcare but how many new mousetraps in areas that have already had massive change in the last 5 years be supported by the investor community?

Adam Quinton posted The Coming Angel Ice Age, a worthy read about what he is seeing and quite frankly what I am feeling too.  Excessive supply vs angels bandwidth is essentially the root of what Adam is talking about.

The good news is over the next few years I believe we will see more companies become profitable early on without raising multiple rounds.  There are pros and cons to that.  The pro is obviously the founders become masters of their own destiny on many levels.  The con is it is difficult to really put your foot on the gas to build a huge business when you are relying on capital from annual profits.  It can be done but not as quickly.

Not sure I have a wrap up on this post but this is something that I will be thinking a lot about in 2016 as new founders walk into my door.

Comments (Archived):

  1. Yinka!

    Interesting post. 90 investments over 8 years is a lot of activity! It would be great to read your thoughts at some point in future on your portfolio’s trends and quirks by sector/company stage/other.In terms of building fast as you mentioned, do you find that certain sectors seem more amenable to organic growth (more profitable in long run) than others? I.e. with higher-end fashion/design niches, when fast growth is achieved in short time based on advertising + huge discounts, that growth reverses/shrinks (vs just stopping) if discounts are cancelled because those customers mostly weren’t premium shoppers to begin with. Even worse if growth was also based on expansion to new geographical markets, due to increased logistic costs.

    1. Gotham Gal

      at this point change is continual. if i pointed in one direction then it would probably change. many factors

  2. Rohan

    Hi Joanne, not sure if this is confidential, etc. I’m curious – how many of these investments do you need to have done well to have returned capital?What is the usual ratio angels work with? (I’m assuming it won’t be as many because the initial investment amount is small?)

    1. Gotham Gal

      If the business is moving in the direction that makes sense to me, I participate. It is as simple as that. Also depends on valuation, etc too

  3. LE

    Excessive supply because in this day and age many of the people doing startups aren’t what I will call “organic” startup people and therefore they choose the path for the wrong reasons and not for love of business.They are only in it because startups are the current in vogue thing to do. [1][1] When I graduated business school my girlfriend’s mother cringed when I told her what I was starting a business (instead of, say, law or medicine). Literally, I could see it in her face.

  4. Dan Cornish

    Angels and investors need to look at new models of investing recognizing the new reality. Many companies will only need small amount of capital to help with growth. If a company is profitable and only needs 20% of current revenue to hire more sales people,then a large check for equity will not be the right move. Perhaps revenue share, loans, royalties and other more traditional ways of getting a return will become more acceptable to traditional angels.For instance, a $250,000 investment for three years at 20% per year paid back thru recurring revenue is a very nice investment. It is not a 3X, but then you do not need as many unicorns.As for your worry “what’s let to build” remember all of the folks who predicted there was nothing let to invent. (From Wikipedia’s article ‘Charles Holland Duell’).Law Professor Dennis Crouch has pointed out that an 1899 issue of the humor magazine Punch offered a look at ‘the coming century,’ in which a genius asked a boy, ‘Isn’t there a clerk who can examine patents?’ The boy replied, ‘Quite unnecessary, Sir. Everything that can be invented has been invented.’

    1. Gotham Gal

      Nice slice of historyI totally agree with you on he shifting model. Big believer of that.

    2. jason wright

      Albert Einstein laughed out loud when he read that issue of Punch.

  5. William Mougayar

    It is a time of reflection and reality checks. Winter comes to angel investors too, not just startups. Slow cycles bring more discriminatory thinking, and this is good for all players involved.

    1. Gotham Gal


  6. awaldstein

    The thing that we haven’t imagined yet that will change our world is looking for funding right now.Most important thing is as an investor is have a poise to be able to discover it.

  7. Shaun Abrahamson

    Great perspective. I wonder how much of the speedup is being caused by Micro VCs? This seems to create a situation where there are more full time people with more capital focused on seed stage and so processes can move relatively faster. I’d love to see data on the rate at which deals are coming together, but my sense is that seed rounds are getting done faster.On supply, 2.5 years ago when we began to focus more narrowly on city life, my main concern was that we might be too narrow. Now I feel like we often lack expertise to evaluate some very specialized opportunities that may turn out to be large spaces. For example, if the “water space” is anything like energy in the coming years, it might warrant it’s own fund/s.Thanks for tirelessly sharing your perspective and approach.

    1. Gotham Gal

      How you focused on the city aspect is super smart. It allows you to dig deep into one focus and become experts. Urban areas are changing rapidly and more to come over the next decade.

  8. Jenna Abdou

    Love this, Joanne. Hope you’ll keep us posted with your thoughts and findings throughout 2016.

  9. jkostecki

    I think that the real innovation is just getting started. The “easy” and sexy stuff has been built, now it’s time for the really deep innovation in areas that matter but have had much higher barriers of entry. Startups are just getting into the car industry. This is going to be hundreds of billions of dollars in value creation right there. You mentioned healthcare. The industrial energy field – thousands of applications there. Our houses are still “stupid” (inefficient, take up way too much space, are underutilized, drain way too much energy, etc.). We still leave the house to make most purchases. Everything is in packaging when it really doesn’t need to be. So on and so forth. Hundreds of thousands of new applications. The cool startups haven’t been built. You’re right – we probably won’t have too many new photo sharing apps or event planning tools (yeay:) so now we can focus our resources on building the really cool stuff.

    1. Gotham Gal

      I absolutely agree with you. More to be done!

      1. jkostecki

        Thanks:) As far as bandwidth goes I totally agree with both you and Adam Quinton – angels are really strained right now but a lot of this traffic can be solved with new tools. Angels still source deals in a very antiquated way (warm intros from people who don’t really know the startup very well, inefficient coffee meetings, lots of back and forth but often very weak DD, etc.). Lots of folks (inc. myself) are building tools to help angels identify, screen and vet early-stage companies in a more efficient way so that you guys can focus on what you do best and we can help you get a lot of the mundane work out of the way.

        1. Gotham Gal

          There is something about the work that works. The best VC’s in the business still manage and make those connects with their deals.

          1. jkostecki

            VCs yes, although the rise of tools such as Visible.vc, Mattermark and many others is indicative of the way tech will be used in this space. A VC also has (on average) 7 people in their org charts “touching a deal”. Angels – not so much so tech might be helpful here.

          2. jkostecki

            One quick questions: are there any newsletters/regular resources you read online to help you become a better angel?