Mark Suster (generally, one of my favorite writers about angel/VC investing) wrote an article yesterday called "
Here's What Angel Investing And Florida Condos Have in Common" and made several points that I think are worth considering in a southeaster context.
His points were primarily:
- angel investing is currently a hot fad;
- there are too many startups being formed for the historical ratio to be successful;
- the VC market is overheated, so it is masking the problem of too many startups;
- we won't fully realize the bubble for another 5-6 years;
- angel investors, like other investors tend to pick poorly and buy high then sell low; and
- if investors pick the right sectors there are still good startups available.
These are interesting for a number of reason, but mainly because of how west coast influenced they seem to be.
"Hot Fad" - Angel investing may be a hot fad in LA or Boston, but in the southeast angel investors are still few and far between and the resulting investment gap is large. If you question that statement, then I would encourage you to ask your local VC groups because I bet they will tell you they are still searching hard for qualified deals and that they really don't have a good place to refer companies that are too early stage for their investment criteria.
"VC market overheated" - just a couple of weeks ago at the southeastern ACA meeting we heard over and over again how difficult the current market is for raising a new venture fund. Without new funds it is hard for a market to get overheated. Also, the hot VC markets don't reach well into other geographies, so even if certain pockets are hot it still doesn't reach. Brad Feld ( I think it was Brad) explained it well a month or so ago when he pointed out that because of limited time, he really had to spend his time looking at deals in his core travel routes.
"Bubble" - this point I agree with...at least to the extent that I agree that angel deals are no different than other businesses and need to be supported by solid economic fundamentals. Thankfully, we are able to wait and pick through deals that don't seem to have solid fundamentals (i.e. actual sales and even profits...jaw dropping for west coast angels I know).
"Investors buy high and sell low" - this is a trait where I think southerners can claim some superiority in angel investing because southerners by nature are less prone to jump onto the bandwagon of the last hot trend. Southerners are used to being considered uncool on a national basis and some even revel in it, so pragmatism is a bit more apt to rule the day. **I realize the real estate boom hurt southerners too, but the desire to own land is a particularly southern weakness that I think overruled our otherwise general pragmatism.
"Certain sectors are still good" - I want to agree with this point, but I don't because it just sounds too much like the same fad based investing Mark was railing against in the article. Instead, I will say that good businesses and good business opportunities can make for successful investments in any market.
Overall, I will say that the southeast is still an undiscovered gem for many investors and that it is good business to be a part of companies that are growing and successful, which is exactly what our southern angels are seeking to do.
**If you want to see what I mean come check out a local ACA group meeting (
BirminghamAngels.com) and I think you will find there is still plenty of room for good business people that have vision and practicality, both as entrepreneurs and investors.
