A Great Time to be Investing in Startups
Right now the world is on the edge of full blown panic. Technology has given us the ability to recognise and respond to the COVID-19 crisis with a speed and scale hitherto unimaginable. As we undertake these measures for the first time at this scale, leadership is challenged to manage the communications and, consequentially, the populace are uneasy. Thus, we are on the edge of panic.
In the light of such extremes, how should we react as founders and funders of high-growth startup ventures?
We should redouble our efforts to identify and pursue solutions that combine new technology and new operating models to reshape the world. Focus on making the world a better place without destroying the fabric of society and while preserving the integrity of our environment.
Do these sound like grand ideals, lofty goals and unattainable targets?
There has never been a better time to aim so high!
Market timing is the most critical factor in startup success and failure — meeting the market! Radical innovation always takes time to crystallise and reach scalable deployment. Startups are ideally suited to counter-cyclical investing. Together, Angel investors and founders should be imagining that better future. Some opportunities will arise for immediate execution to address the needs of the crisis world, such as our portfolio company 3DM being able to redeploy an existing machine sold into the metal surfacing market as a cleaning machine for hospitals and public transport. Other opportunities will be for solutions that will be important in the post-virus world starting with a release from isolation onto whatever the new normal will be in 2021 and beyond.
For the next few months at least we are in a world of extremely low interest rates, stock market prices and property values. Some elements of those will recover in full over time but, how long it will take is a hotly debated issue. Value growth in those assets will be slow but, in many of them it will be fairly certain, which does indicate some great buying opportunities in public markets.
Regardless, for the time being we are back in a startup market where the investor holds the balance of power (always happens in a recession like GFC, 9/11, etc.). As Angel investors, our view has always been that we should pursue investments on terms that make sense to us, terms designed to give the company the best chance of success with the interests of the founders aligned with the interests of the investors. In recent years we have seen the bubble of startup and entrepreneurship mania put the balance of power in the hands of founders and their advisers. That has led to inflated valuations and undesirable investment terms.
As investors we must be confident of our own investment thesis and have the discipline to adhere to our own thinking. That doesn’t mean being inflexible, only being assertive on the terms that matter most to us in any given situation. No different to what we always say but, the discipline is often more flexible in buoyant times. These are not those times!
Most of the funding for startups and scale-ups is drying up so understanding the capital intensity of the ventures we want to fund is even more critical now.
Institutional investors for whom startup investing is a small part of their portfolio should recognise that as a long term, patient capital investment they should not slow on startup investing. For private investors, unless their wealth is entirely on paper and critically exposed to the macroeconomic shock we are experiencing, they too should recognise that startup investing is inherently counter-cyclical. The primary change I see that makes sense is that since customers may be harder to secure for many startups, investors need to decide if they want to support those ventures in the hope that the ONLY thing wrong is the availability of customers. That judgement will likely differ significantly between portfolio companies and new investments.
The virus and associated macro-economic shock has already changed the world. We may not know how that change will play out in detail but, creative and innovative startups are the most likely way to find the key elements of a new direction, a new way of doing things.
Melbourne Angels is forging ahead to continue to be an influential and significant investor in startups where our ability and capacity to help beyond the money remains a key deciding factor.
As one of the anchor pillars of the Melbourne, Victorian and Australian startup investment communities the last few weeks have seen a rash of newer stakeholders in the ecosystem reaching out to ask for our support and advice. We are strong, ethical, clear in our purpose and sustainable in our operations. Approaches are not to invest, rather to be present, to bolster them with our brand and the time of our members. This recognition is gratifying. As an all-volunteer group, we are being careful in how we engage to ensure we are respectful of our members’ time and that engagements further the cause of those we help.
Our monthly pitch meetings will continue as online events and we continue to recruit new members to take advantage of this time of opportunity. As we evolve our practices to work well in this mode of interaction we are mindful it is likely to become a permanent feature of our operations and a tool in extending access and growing our reach and impact. Our experienced members are coaching our portfolio founders, drawing on the members’ decades of experiences in creating business success.
As Angels we are people who inherently look to the future with optimism, to see what’s possible and I urge everyone to embrace that perspective. After all, it is a much more rewarding way to live every day.
About the Author
Jordan Green, founder and leader of the Melbourne Angels, is an internationally sought after thought leader in early-stage ecosystems, adviser to governments developing Angel ecosystems, serial entrepreneur, successful VC and an optimist. He is the 2019 Australian Angel Investor of the Year.
