Angels vs VCs. Hard work vs Randomness.

Author

Matt Jonns
July 04, 2024 • Estimated Reading Time: 7 minutes

Investment. It’s tough at the moment, there’s no denying that.

But, it’s not all doom and gloom… promise ! In fact, I think in the wider scheme of things there is a benefit (I will explain).

I’m also in the midst of raising right now for our fund and it’s taking up all my time. I have very little time for CEO’ing amongst talking to investors, networking and investment admin (not my favourite thing).

What it does mean is, I have a pretty good view on what is going on in the landscape right now for both investors and the founders we invest in and speak to on a daily basis.

Here’s what I’m seeing:

INVESTMENT
Angels vs VC

Raising from Angels:

It’s tough out there. The positive will come I promise.

There is capital out there, but because there haven’t been enough liquidity events, investors are being cautious at the earlier-stage. Right now the time horizon to exit is looking like 5-10 years which is a long time to wait. Because of this investors are really taking their time to find the right deals.

The deals they are looking for, more often than not, are the ones who can prove some form of traction or validation. Angels are making sure the founder is a great fit and they have the right team. Risk appetite has dropped.

Traction trumps everything right now because it’s a proof point. Rather than hot air and painting big future vision, angels want to know if revenue is there.

Raising from VCs:

VCs have money to invest. But, it very much depends at what part of the cycle you’ve reached them at. If you catch them at the right point and they have money to deploy you have a lot more to prove then many companies previously.

I know VCs who managed to raise a 10 million fund last year and only managed to raise 3 million this year. Again, not many liquidity events means less money going around.

The key again is… traction.

If you show traction and catch them at the right point and you’re in a scalable market, you can raise.

The downside is, it’s more competitive than it’s ever been. You need to be so sure of your unique offering, your business model, team and forecasts. There are far less places to hide.

On the flip side:

It’s a good time for funds and angels to be investing if you have confidence to do so, less competition out there.

There’s a mixed feeling out there: it’s hard but some really good companies are being funded !

The positive:

I did promise it was coming !

Startups are risky, that’s a given and they can never be fully de-risked. But, with this new emphasis on traction, founders are being asked to prove they have a market first. This is forcing founders to prove their idea and forcing investors to invest in something which has proven success (at a certain level). It’s harder but the businesses that will emerge will be stronger for it !

THE FUTURE OF BUSINESS
Fooled by Randomness

I used to always think that successful people/entrepreneurs achieved everything through hard work and great execution. These things help, but I recently read a book that changed my mind big time !

I’ve just read Fooled By Randomness by Nassim Nicholas Taleb. It’s a fantastic book about how things like hindsight bias and survivorship bias make us forget how many people fail, remember the few who succeed, and create reasons and patterns for their success even though it was largely random.

Lots of successful people were in the right place at the right time.

Take Bill Gates, for example, he was at a school with pretty much the only computer in the country at the time, which allowed him to code early. He worked really hard, and is super smart but his circumstance made a huge difference.

Since reading the book it’s put a lot less pressure on my day to day. You can increase your circle of luck and serendipity, network, throw yourself into different situations, but ultimately part of your success is down to the universe.

I know people who have made a lot of money with sub-optimal products but good timing. I know others who have had everything, built a great product but it didn’t work out for them.

It’s the same with our investments. We can do as much due diligence as possible, choose the best founders but it’s also in the lap of the gods a little bit !

Not sure if it helps to draw this conclusion as it does leave it up to chance but it certainly relieves some pressure. I would highly recommend giving it a read.

INVESTMENT
The State Of Venture For Family Offices

Recently, our Chief Strategy Officer, Olex, wrote an article on the role Family Offices will play in venture investment. Link below to read the full article.

I really do think that FOs until now have been overlooked in this space. Of the conversations I’m having, more FOs want to get into startup investment but don’t always have the right skills, resources or best analysts to do so.

The opportunity for them is to invest with emerging funds who have access to deal flow and even better those with in-house venture studios too.

It’s a win-win. Their knowledge and wisdom and longer-game investment approach, combined with the ability for deal flow and in-house skills of a fund.

It’s going to be fascinating to watch these partnerships over the next few years !

Olex articulates this in much more detail below. It could be huge for the startup world.

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All the best,

Matt Jonns