Why 2023 is a great time to be an angel investor

The news is full of doom and gloom, the markets are depressing and most of our savings will have taken a dip. But as history has shown time and time again, a downturn is a good time to start investing, and this year in particular is a golden year for angels. Our MD, Kristina Pereckaite, shares five reasons why:

1. VCs are quieter = more deal flow for angels
   ”Usually, VCs are later-stage investors but over the last decade, they have dominated the early-stage markets with their SEIS funds, pouring money into pre-seed companies. Whilst this is a positive as it opens up a bigger funding pool for companies, it has meant that VCs would often swoop in before angel investors had a chance, stamping on their deal terms on the investment and taking up the tax relief allowance. As VCs struggle to raise money in the downturn and focus on helping portfolio companies that need more capital, they are quieter and more closed off to early-stage businesses. Meaning, more deal flow at better terms coming through to angel groups.”
   
   

2. S/EIS tax reliefs have been extended
   ”The UK government has extended and increased its world-leading scheme that encourages investment in early-stage companies. As a UK angel, you can receive up to 50% of your investment back via income tax relief and even get loss relief if a company doesn’t work out. This scheme helps to mitigate some of the risk on what is a high-risk investment.”
   
   

3. Everything is on sale (…or at least at a fair price again)
   ”After valuations skyrocketed in the last few years, we are seeing them come back down to earth, and the ball is very much in your court as an angel investor to negotiate the deal terms that are fair and will increase the likelihood of you receiving a return if things go well.”
   
   

4. Angel investing is much more accessible and less discriminatory
   ”Whilst only a decade ago, angel investment seemed to be reserved only for the elite. It would tend to be older white executive men who were very wealthy and knew people who knew people. Today, things are different: anyone can become an angel (of course you still need to have the cash). Angel groups and networks are easier to access and are much more diverse, many more are women-led (like South East Angels) and some are specifically for women. Minimum ticket sizes are smaller (with some syndicates, there is no minimum at all!) making building a portfolio a more realistic prospect.”
   
   

5. Downturns breed opportunity
   ”If you’ve been in the game a while, I don’t need to tell you that downturns have birthed some pretty big businesses. Hard times tend to filter out weak business models and propel the most resilient founders. Spending time with our most experienced investor members, my stress about the downturn tends to disappear - they see nothing but opportunity in a time like this.”

Here are some stories of angel investors who made significant returns after investing in a downturn:

The Body Shop
Ian McGlinn was the first Angel investor in The Body Shop. He invested £4,000 pounds to help Anita Roddick get the second store up and running in Chichester. Years later and that £4k turned into £146 million!

Anita Roderick in front of her first store in Brighton - 1976

Mint.com
In 2006, during a period of economic uncertainty, Aaron Patzer founded Mint.com, a personal finance management platform. Angel investor Ram Shriram recognized the potential of the product and invested in Mint.com's seed round. Intuit later acquired the company for $170 million.

AppDynamics
In 2008, Jyoti Bansal founded AppDynamics, a software intelligence company, during a challenging economic climate. Individual angel investor Chamath Palihapitiya invested in the startup's early stages. AppDynamics went on to experience significant growth and was eventually acquired by Cisco for $3.7 billion in 2017.

Nest Labs
In 2010, amidst an uncertain economic climate, Tony Fadell and Matt Rogers co-founded Nest Labs, a company focused on smart home devices, including the Nest Learning Thermostat. One of the early angel investors in Nest Labs was Shervin Pishevar. The company gained significant traction and was acquired by Google for $3.2 billion in 2014, providing a successful outcome for Pishevar and other early backers.

Instagram
In 2010, Instagram, a photo-sharing app, was launched during a time when the economy was slowly recovering from the financial crisis. Chris Sacca, demonstrating his keen investment instincts, invested in the seed round of Instagram. His $25,000 investment turned into a massive return when Facebook acquired Instagram for $1 billion just two years later.

Stories of exponential returns like this sound out of reach, until you have some of your own.

Of course, go into angel investing slowly and responsibility

1. Only invest a small part of your wealth: an amount that would not affect your lifestyle if you lost it

2. Build a portfolio of at least 10 and ideally 30 investments. Statistically 50% will fail, some will do okay, and a few will return the full size of your portfolio and then some.

3. Don’t do it on your own, invest with others, if you don’t have a group of investors in your life, find a collective that aligns with your values/ investment focus. Check out out: South East Angels.