Angel Investing Trends for 2012
This year in Southern California, Barry Paulk's Pasadena Angels funded 12 companies, raising $3 million in angel capital. Across the country in New York, angel investor David Rose of angel investing sourcing platform Gust took an interest in companies like PublicStuff.org, that uses technologies to “revolutionize non-tech older industries.” In Miami, Timothy Cartwright's Tamiami Angels Fund completed its first year with a $50,000 investment, leaving the angel capital group $2 million to invest in 2012.
While angel capital deals continued at a consistent pace this year, there was still hesitation in the marketplace. "We are stuck in an environment with volatility," warned Greg Hext of Chapman, Hext, & Co. in Texas, "If the [entrepreneur's] equation has too many unknowns, then we are not comfortable investing."
Whether it's the unknowns, growth prospects or the management team, entrepreneurs face plenty of obstacles when it comes to raising start-up capital, and usually that's because something is missing in their overall plan. FOX Business spoke with angel investors from across the country to find out what will be piquing their interest in 2012,and what entrepreneurs should know before they start trying to raise capital.
FBN: What trends in the marketplace should entrepreneurs pay close attention to in 2012?
"I would advise entrepreneurs to look around for anything other than whatever everyone else is doing. Please no more social networks, music sharing or group commerce ideas! Instead, think about how new technologies can be applied to virtually every industry in the world, from food service to carpentry, letterpress printing to religion." - David Rose, Gust
"We are keeping a close on eye on technology for the baby boomer market. Every year there are going to be more hip replacement knee replacements. Being in South Florida, we are also particularly interested in consumer services for the Latino market."- Timothy Cartwright, Tamiami Angels
"We are looking at how new tech start ups are merging with what we call the ‘old dirty businesses’, like ship yards. Instead of growing revenue streams, we are looking at what established companies are buying as revenue streams." - Greg Hext, Chapman, Hext, & Co.
FBN: What's a common misconception that entrepreneurs have about angel investing?
"A lot of entrepreneurs fail to recognize that this is an investment for us, and that we are looking for sizable returns over a short period of time - generally speaking a 10-time return in less than five years. The business has to have relatively fast growth that will be attractive to companies that are more established to buy them out or acquire them."- Barry Paulk, Pasadena Angels
"That angel investors are needed before you can start a business. Wrong. These days, angels are highly unlikely to fund an idea. You need to bootstrap yourself to have something to show, ideally a functioning product with happy customers, before you start talking to investors." - David S. Rose, Gust
"Entrepreneurs often think that [angel investors] are going to leave them alone and let them do what they want and that because they have a great idea, someone is going to fund it. When you are talking to an angel investor you are competing against every other attractive investment that this person is looking at in the market." -Greg Hext, Chapman, Hext, & Co.
FBN: What advice do you have for entrepreneurs seeking angel capital in 2012?
"Angel investing is a marketplace and you have to know that marketplace. If you don't get funding, take time to understand why you did not get it. That is incredibly important data that you can use the next time around." - Timothy Cartwright, Tamiami Angels
"Know your product and the competition inside and out. The knowledge is critical for us to make an investment." - Barry Paulk, Pasadena Angels
"Being an entrepreneur is tough, really tough. You have to develop a real understanding of how the game is played before you dive in. There are some wonderful resources to help walk entrepreneurs through the process, including Bill Payne's The Definitive Guide to Raising Money from Angels and Jeff Bussgang's Mastering the VC Game.