Entrepreneurs who require funding for their startup have long counted on self-accredited high net worth individuals ("angels") to fill their needs, after friends and family, and before they qualify for institutional investments ("VCs"). New crowd funding platforms on the Internet, like Kickstarter and IndieGoGo, as well as the Jobs Act of 2012, are expected by many to ramp up regular people's ability to fund new opportunities and kill the need for angel groups.
I just don't see it happening any time soon. Neither does David S. Rose, according to his recent book, Angel Investing. David is one of the most active angel investors in New York, and also the CEO of Gust, which is an online platform for startup financing used by over 45,000 accredited angel investors, 1,000 angel groups and venture capital funds, and 200,000 entrepreneurs.
According to Wikipedia, angel investors contribute over $20 billion annually to entrepreneurs in the U.S., while the latest figures on crowd funding show about $9.5 billion collected in 2014. Of course, both are impressive, but according to Rose, angel investing is as poised as crowd funding to take off due to the same online technology, and there is plenty of opportunity for both.
He does caution both entrepreneurs and investors to skip the hype and recognize the fundamental truths of the startup industry, before joining the crowd, or joining angels:
It remains to be seen whether all the recent crowd funding enhancements, including the right to general solicitation (Jobs Act, Title II), and the still pending ability to crowd fund equity investments in startup (Jobs Act, Title III), will bring more value to entrepreneurs than burden. Compliance is definitely a regulatory burden, and could become a nightmare.
Angel investors have long been required to "certify through signature" that their net worth or income qualifies them to become accredited, so their burden and risk haven't changed yet. Some investors fear that this new general solicitation rule will lead to bank statement or tax return disclosures, increase their burden, and may cause qualified angels to back out of the process.
Angel groups fear the loss of members for the same reason. Here again, the entrepreneur will be the one hurt most, by having fewer funding sources to access. I predict that angel investors, who are generally early adopters, will actually be quick to adapt to the new requirements and online systems, and will operate side by side with the new influx of non-accredited investors.
After all, investors of all types who fund entrepreneurs, starting with friends and family, have always been all about creating win-win situations. The investor wins only when the startup wins, and today's angels can only cover about three percent of funding requests. We have a long way to go, in this new era of the entrepreneur, before angel investors aren't needed.
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