The current downturn in some of the world’s largest economies has spooked many investors. They wonder if they should just sit on the sidelines and wait for things to turn around. But a number of visionary angel investors see the current troubles as an exceptional opportunity to take a stake in some exciting startups — companies that could take off like rockets when economic conditions improve.
On the whole, experienced angels are an optimistic bunch. Where others see doom and gloom, they see flickers of light that could turn into bright flames.
This optimism can lead to opportunities. In the current economic climate, venture capital firms are cutting back on their investments and becoming more cautious than usual. They are especially reluctant to get involved in early-stage investments. For angel investors, this is good news. It means that they don’t have to compete with venture capital firms for a stake in the current crop of promising startups.
Angels who have been around for a while learned from their experience in the technology meltdown of 2001-2003. They know that there are always great startups around, no matter what the economy as a whole is doing. And with less venture capital available, there are plenty of good candidates that are not getting funded. This gives angels the luxury of being more selective in their investments. When the economy turns around, many of today’s promising candidates will become tomorrow’s superstars.
In an important sense, this is an excellent time to be an angel investor because the world’s economic troubles have driven down the valuations of startups. The value of a new company is determined by an estimate of its assets, its market, and its income stream. When these numbers go down, the value of the company goes down. This means that angels can buy a bigger stake in a startup for the same amount of money.
When things do turn around, it is highly likely that Asian economies will lead the way. When this happens, angels who have bought sizable stakes in Asian startups at bargain prices may see an impressive return on their investments.
In good times and bad, Venture Hype is a meeting place for people who look beyond today’s ups and downs to the promise of the future — people who know that any day is a good day to make a difference.
* For series, references are published in the last installment of the series.