Time, gentlemen, puh-lease!
Yes, I’m calling time on UK angel investing – it’s the end of the line, take all your bags with you, thank you for travelling with the UK startup industry, nothing to see now, move on.
And here’s why.
As with most complex systems, there’s no single reason for UK angel investing to have slowly died on its feet in the way that it clearly has. But there are some big trends at play, some of which I discussed in yesterday’s post on The sucky Tao of bootstrapping:-
- The accelerating speed of change – this means that opportunity windows are ever-narrower
- Withdrawal of matched startup funding by UK banks – these days, unsecured facilities over £25K are rare
- Loss of faith in business plans as a means of communication – angels feel these are being used to ‘game’ them
- Loss of faith in MBAs and business school training – hence only successful serial entrepreneurs need apply
- Lack of European role models – many high-profile angels have exited with singed (if not actually burnt) wings
- Loss of grants as an effective R&D development tool – apart from R&D tax credits
- Startup support aimed at regenerating deprived areas – far, far from angels’ Home Counties mini-mansions
- Loss of IPO as a viable exit route for the immediate future
- Ever-lengthening time to trade sale – was five years, then six years, now who knows?
- Pervasive inability to confidently value startups using any basis
- UK angels’ increasing time-to-invest - in the last 3 years, this has gone from ~6 months to 12+ months
- Strong desire to excessively delay investment – getting better valuations by letting startups burn themselves into desperation
- Strong desire to avoid leading a round – everyone (and I do mean everyone) now wants to come in second
What’s there to like?
Furthermore, UK angels’ investment practice is very rarely economically pragmatic. Any sensible economist would tell you that a robust investment portfolio should contain investments that are unconnected, so that you don’t lose the lot if sector X just happens to catch a cold (one big market sneeze can kill a startup) – yet the mythology of the “smart angel” would have you believe that you should only invest in areas closely linked to your experience and business expertise. As a result, I think the unbalanced portfolios held by UK angels are partly to blame for so many of them having been burnt over the last few years.
UK angel networks have tried to semi-professionalize startup investment, but it seems they have been more effective at spreading some kind of canapé-carried indecision virus than in promoting positive investment action. For a £200K angel raise across multiple UK networks, an entrepreneur would probably have to write off ~£20K to account for the costs of making that raise if successful, and ~£10K if (more likely) unsuccessful. All of which means that pitching to the rich is currently little more than an expensive hobby – who could honestly deny that UK entrepreneurs would generally be far better off putting spare £10K tranches into product development and customer development?
So, does the end of UK angel investing mean (shudder) the end for UK startup financing? Actually, no – not even close. I think that in 12-ish months’ time, UK entrepreneurs will come to see all this as no more than the end of an era, as we all move from the bad old days (i.e. now) of jittery, parochial angels towards the strangely inspiring new days (i.e. soon) of virtual angels.
“But Nick“, I hear you ask, “How will we recognize these semi-mystical ‘virtual business angels‘ you’ve just made up?“
“Simples“, I say, “I have a list of bullet points describing them you can pin beside your PC. You’ll just know. Oh, and relax – they probably won’t look much like Dave McClure.” Here you go!
- Where they aren’t: paid-for angel networks (so don’t even bother looking there), other intermediaries
- Where they are: LinkedIn industry groups, Facebook (maybe), Twitter, informal networks, other timezones
- Things they don’t like: small rounds, being on the board, putting more than $30K in, paying for a CFO, seeing money burn
- Things they do like: transparency, monthly progress updates, Skyped pitches, productive engineers, hungry salesmen, due diligence bedtime reading
- Turn-off phrases: bootstrapping, viral, Freemium, pivot, Minimum Viable Product
- Turn-on phrases: economical, PR, sales, Minimum Sexy Product
Really, all this comes down to is that angel networks offer exactly the kind of intermediatory function that you’d have thought the Internet ought to have killed. Well, maybe – indirectly – it has. It’s now time for people to invent entirely new ways of connecting angels and startups – but the big trick will be doing this within FSMA guidelines (specifically, the part dealing with making a promotion to more than 99 people) and other international regulatory investment guidelines.
Hope this is a helpful guide to the future!