Getting to "yes" in a world of "no"…


Whilst scattergun blogging about various angel funding myths a few days ago, I pointed out that – though it’s entirely true there aren’t any statistics on the subject I’ve ever seen – my best guess is that roughly 75% of recent angel funding has been into working companies typically suffering [thanks to the UK banks] from dysfunctional liquidity. Basically, a young-ish company hits a liquidity wall, can’t meet its short-term financial obligations, angel steps in, buys half the company for a song, company gets its growth mojo back (albeit in a limited kind way), everyone is happy(-ish).

As you can imagine, this is gun-to-the-head fire-sale economics: opportunistic stuff, and in many ways is as far from what is normally thought of as “startup” investing as you can get. Yet the two categories sit side by side in angels’ portfolios, contributing to the same aggregate statistics. Is an investor who only ever takes such sharky positions really an ‘angel’ in any useful sense?

Following the “business pattern” literature, I think the two are such polar extremes of investment behaviour that they deserve different names: specifically I think they should be called startups and startdowns. VCs already have the concept of a “down round” (where an investment comes in at a lower valuation than the previous investment round), so this is an equivalent version but where the first external investment comes in at a fire sale valuation – starting down, hence “startdown“.

So, when you next discuss your business with angels, why not ask them how many startdowns there are in their portfolio? Or what their portfolios’ startup-to-startdown ratios are?

Be prepared for an explosion in shiftiness.

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