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Everybody Wants to Be an Angel (Investor)

By The Daily Upside – Aug 9, 2021 at 9:00PM

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When a company's valuation heads into the clouds, many investors lament not being one of the lucky few to get in on the ground floor. Up until...

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When a company's valuation heads into the clouds, many investors lament not being one of the lucky few to get in on the ground floor.

Up until last year, however, securities rules barred all but the wealthiest investors from backing new private start-ups. New data shows that, since those rules were tweaked, start-ups are witnessing a sky full of angel investors.

3,000 Angels Get Their Wings

Not long ago, most Americans were barred from becoming angel investors due to the high risks involved in start-up investing. Roughly 90% of start-ups fail (10% of them within the first year and 70% by year five), according to the Small Business Administration.

In the last year, however, the Securities and Exchange Commission has relaxed rules around angel investing. In March, the SEC increased the maximum amount firms can raise through Regulation Crowdfunding campaigns — which allow them to sell securities like equity or convertible notes to the public online — from $1 million to $5 million. The loosened regulatory environment has seen many investors donning wings and halos for the first time:

  • Over 3,000 new angel investors will make their first deal in 2021, compared to 2,725 last year, according to PitchBook.
  • Angel investors poured $2.1 billion in start-ups in just the first six months of this year; a total that is quickly approaching the $2.6 billion raised in all of 2020, according to the National Venture Capital Association and PitchBook.

CEO of AngelList Venture Avlok Kohli summed up the situation frankly, saying, "Overnight, the entire world just woke up and went, 'Oh, wow, we want to go invest in technology.'"

From Angels To Cherubs: There was a time when a precious few investors doling out hefty lump sums was the go-to approach for start-ups to raise capital, but the angel investing boom has provoked its own boom — in money-pooling services. The start-up Allocations, for example, allows investors to participate in group funding deals, while another start-up, Assure, simplifies the deal process and related administrative work. Party Round, meanwhile, helps start-ups raise money via large groups of smaller investors.

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