Angel Insights Blog

Author: Brittni Abiolu, MET, Founder & Managing Director of VentureHue Inc.

Angel investing has undergone significant changes in recent years. As an important source of financing for startups and small businesses, it's critical for current and emerging angel investors to understand the shifts occurring in the industry. Here are some of the most notable dynamics impacting angel capital today.

The Rise of Angel Groups

Whereas angels used to invest on their own, there has been a major trend toward joining angel investor groups or networks. By pooling capital and expertise, these groups allow angels to make larger investments, conduct proper due diligence and gain access to high-quality deal flow. Major angel groups like New York Angels and Golden Seeds wield considerable power in startup ecosystems. Joining angel groups is a simple way for emerging investors to begin investing immediately and learn from experienced angels.

The Push for More Diversity

The angel investment community has long suffered from a lack of diversity, being predominantly comprised of white males. But there is an increasing push to get more women and minorities represented as angel investors. Groups like 37 Angels, Pipeline Angels and Black Angel Tech Fund are dedicated to developing diverse angel talent. While this may seem like a social issue, the business case for encouraging diversity is strong.

More diverse angel groups lead to less groupthink, less bias, and better decision making. People with different backgrounds bring new perspectives, networks and insights to the table. This results in a wider funnel of deal flows, since women and minority founders are more likely to connect with diverse angels. Portfolio company returns can improve as well. One study by the Kauffman Foundation found diverse founding teams deliver higher average ROI.

In the long run, developing a new generation of women and minority angel investors will pay dividends through better startup returns and a stronger, more resilient angel ecosystem. It will also increase the chances of these groups creating generational wealth. The barriers to entry in angel investing are already being broken down through online platforms, micro-funds and training programs. Setting diversity as a priority now will ensure angel capital retains its strength and influence for decades to come.

The Move Toward Online Platforms

Technology is disrupting angel investing like it has so many other industries. Online platforms such as AngelList, Republic and SeedInvest are providing new ways for angels to find deals, conduct due diligence and invest in startups. These platforms increase efficiency, reduce costs, democratize access to angel deals and make it easier for emerging angel investors to get started. However, they require angels to adapt and leverage technology more fully.

The Rise of Micro VCs

So-called "micro VCs" are VC funds with smaller average investment sizes that are increasingly competing with angel investors for deals. Angels once led pre-seed and seed rounds, but micro VCs are now active in those early stages - deploying more capital per check but demanding more equity and control. This has compelled angels to sharpen their value proposition to founders.

The Policy Push for Tax Incentives

Seeking to boost local startup ecosystems, many state and local governments are offering tax incentives for angel investing. Policies like investment tax credits and deductions lower the barriers to becoming an angel. But some critics argue such policies mostly benefit wealthy investors, not startups. The efficacy of these incentives remains up for debate.

The pandemic, record-low interest rates and growing mainstream interest in startups and alternative assets have all brought new capital into the angel arena. As the landscape evolves, angels should stay nimble and keep aligning themselves to the needs of entrepreneurs. The investing challenges and opportunities have never been greater. Now is the time for black and other underrepresented investors to take advantage of those opportunities.