Five (different) lessons learned from angel investing in 2024
The start of a new year (and new generation!) is a time for reflection and learning lessons – hence the avalanche of blog posts with the same title as this one! (Which are worse: “lessons learned” or “predictions” posts?)
But since you asked, here are five lessons we have learned, or had even-more-powerfully reinforced, about angel investing in the southeastern US over the last year. We tried not to duplicate the lessons others have learned! (And we’ll spare you our predictions post, but if you’re interested David’s predictions are in recent Venture in the South episodes.)
Take the money
The last couple of years have been tougher than previous years to secure exits. (Though data is mixed, the dynamics for IPOs and later-stage exits are different from earlier-stage, strategic exits, and the market seems to be improving overall – it has still been tougher.)
The first key lesson from the “harder” times is that acquisition offers are tough to get – and there are people around regretting not “taking the money” when it was offered. If someone offers to buy your company, or your investment in a company – even if it’s not perfect, not as much as you would like for your stake, not what you think your company is worth, or not what you “might” get if you hold longer – please consider extra hard before saying “no thanks”.
“Did we miss opportunities to exit in 2021 and 2022?” In retrospect, yes, investors (including us) have portfolio companies who should have “taken the money” instead of rejecting the “too early” offer. Very few companies get incoming offers twice. Take the money.
Celebrate the wins
Despite the exit drought, we distributed positive exit proceeds to VentureSouth members in from 16 rounds of investment in 2024, across a range of deals including meaningful new wins for VentureSouth members at Sensory Analytics and biospatial, payouts of escrows, and debt repayment.
It is not (only) bragging to celebrate wins like these. People are simply not aware of the entrepreneurial and financial successes of startups in the southeast, and won’t be unless we publicize them. These exits aren’t in the Wall Street Journal, but they are a key part of the “southeastern investment thesis”. Perhaps especially in tougher times, celebrate the wins.
Survivorship bias (and zombies)
Everyone knows the “survivorship bias” image of the airplane with the red dots. Similarly in angel investing, angel investors often forget about our “exited and won” investments (and to some extent, their “exited but lost” investments too) – but are constantly reminded about the companies that are still in their portfolio.
One lesson from 2024 is to remember that those “surviving” companies, by definition, take more time and headache to supervise that the companies that were already realized. Of the 2016 VentureSouth vintage, we don’t discuss the exits of FarmShots and Target Pharma regularly any more, but we do hear updates from the companies from that period still in the portfolio.
This might be fine – great companies take a while to build. But it’s often companies that are frustratingly “just not quite there yet,” or perhaps are fully-undead zombies that should really be put out of their misery.
Perhaps a lesson is not to worry about “recency bias” (of latest updates) and “survivorship bias” (of surviving companies), and not let the wins disappear to history too quickly.
The “Victory” Lap
It is always fun / alarming to watch investors’ press releases. When not blowing their new portfolio companies’ 506(b) exemption, we are “celebrating” exits – sometimes for exits that are nothing like as positive as the press releases imply.
This year, we’ve seen the same thing from several entrepreneurs – taking a celebratory LinkedIn “victory lap” when leaving their company, and our investment, floundering (or worse).
We won’t call out names. But when our members ask us “XX just got written down 95% but I just saw XX’s former CEO celebrating on LinkedIn. What am I missing?” there’s a clue that people notice when public statements mislead or fail to “read the room”. It’s a small comfort, but some recognition that $2M of real people’s capital just got incinerated would at least be some comfort to the investors who financed that unsuccessful effort.
So another lesson is: take all the celebrations you read with a huge pinch of salt. And yes, we’re aware that contradicts the celebrate-your-win lesson above!
Resiliency
Investors come and go. In 2020-2022, there were a lot of new investors; in 2023-2024, they went away. 38% down in 2023. Continued decline in 2024. Alarming concentration in the biggest fund names while small investors languish. If you read the alarming headlines, venture capital is broken and becoming obsolete.
But, of course, it isn’t. Investors are resilient. The US has the most robust risk-tolerant investing community in the world. Most practitioners are in this for the long term, painfully aware of the challenges of early stage investing, but convinced of its long term economic attractions and benefits for our local economics. At VentureSouth, we’ve grown our membership, portfolio, and capabilities despite the challenges, and fully expect to continue doing so in 2025.
In part, investors are resilient because entrepreneurs are too. We might regret not taking the money, or all the time spent on keeping zombies lurching along, but we are resilient and will keep working to generate value at companies and returns for investors. Our portfolio companies have demonstrated their resilience through 2024, and our members have shown commitment and perseverance – even when everyone’s personal DPI is not yet where they hoped.
Key lesson from 2024: angel investing is a long flight. We’ll keep flapping in 2025!