Small ‘angels’ on ground floor
Venture capital, once the sole realm of wealthy elites, draws ordinary investors to startups
SAN FRANCISCO — On a recent Wednesday evening, 60 people gathered in a virtual conference room to discuss startup investments. Among them were a professional poker player from Arizona, an allergist in California and a kombucha-maker from Tennessee. All were members of Angel Squad, a six-month $2,500 program that aims to help people break into the clubby world of venture capital as individual investors, known as “angels.”
Founded in January, Angel Squad is one of several ways that people from outside Silicon Valley’s investing elite are now joining the ranks of angel investors. The influx — which includes art curators, dentists, influencers and retirees — is transforming the way that startups raise money, upending the pecking order in venture capital and pushing a niche corner of the investing world toward mass adoption.
More than 3,000 new angel investors are projected to make their first deal this year, up from 2,725 last year, according to the research firm Pitchbook. And the money that angels are pouring into startups has swelled, reaching $2.1 billion in the first six months of 2021, compared with $2.6 billion for all of 2020, according to the National Venture Capital Association and Pitchbook.
Until recently, such investing was off-limits to most people. Securities rules restricted it to the wealthy because of the level of risk involved, since most startups fail. Even those who qualified often lacked the connections to find deals. And startups preferred to raise big sums of cash from a handful of investors, rather than deal with the costs and headaches of processing dozens of tiny checks.
Last year, the Securities and Exchange Commission loosened restrictions and began allowing people to become accredited investors — those allowed to back private startups — after passing a test. New tech tools are making the process of raising funds from many small investors cheaper and faster. And startups have become eager to add potentially helpful angels to their rosters of backers.
Many new angel investors have some connection to the tech industry but are not the VIPS who are normally invited into deals. Some are complete outsiders. Many are broadcasting their activity on social media and turning the investing into a branding opportunity, a hobby, a networking play, a social status or a way to give back.
Still, getting access to the next hot tech startup as a total outsider takes time.
Ashley Flucas, 35, a real estate lawyer in Palm Beach County, Florida, began investing in startups three years ago. She said it was a chance to create generational wealth, something underrepresented people did not typically get access to.
“It’s the same people doing deals with each other and sharing in the wealth, and I’m thinking, how do I break into that?” said Flucas, who is Black.
But it took cold emails, research, building her reputation on Angellist and participating in three angel investing fellowships to get access to deals and construct a portfolio of more than 200 companies, she said. Some of her investments have appreciated enough on paper to return more than she has put in.
Now, Flucas said, she is getting asked to join venture firms or raise her own fund. “The seeds I planted at the beginning of the journey are bearing fruit,” she said.