COVID-19: What You Need to Know As an Angel Investor
Neil here. I hope you’re staying safe at home while we ride out this crisis.
Every day, I like to spend a little time checking in with all of you. I’ll pop in on the Deal Forums, check my email accounts, and then I’ll chat with someone from our Customer Care Team to get an idea of what folks are calling in about.
And it’s no real surprise that lately, we’re getting a lot of questions about coronavirus.
So today, I want to cover some of the things I know you’re most worried about.
The thing is, you never know when a novel event, like COVID-19, could come along and rattle the global economy. But that doesn’t mean we need to panic. This crisis will pass eventually – and in the meantime, I’ll be here to guide you through whatever may come.
Let’s get right into it.
Will we still be able to find deal opportunities if this turns into a full-blown global recession?
As I’ve said many times before, deal flow is the most important tool an angel investor can have. And I know many of you are wondering whether a global recession would negatively impact our ability to source deals.
The short answer is no.
In fact, I wouldn’t be surprised if we started seeing more deals than ever opening up to non-accredited investors in the coming months. When capital is harder to come by, many high-quality startups could turn to Reg. CF (crowdfunding) and Reg. A+ raises to raise cash – which means we may very well see opportunities we couldn’t have accessed before.
What will happen to the companies we’ve recommended – and that you may have already invested in?
I’ll start off by saying this: I can’t predict the future. And part of our core investing philosophy is knowing that the majority of startups fail.
It’s not about winning every time – it’s about winning really big occasionally.
Still, you want to know that your entire portfolio isn’t going to get crushed under the weight of a global recession.
Again – I can’t predict the future. But I will say that you shouldn’t worry too much about this happening.
Here’s why: when a startup raises capital, the industry standard is to raise enough money to last them a minimum of 18 months. We call that amount of time “runway.” It’s calculated based on typical spending and earning patterns.
So, for the most part, the startups in our portfolio have at least 18 months of cash on hand. Plus, most companies are battening down the hatches by cutting costs as we speak – which means that same capital will last them even longer.
What will the angel investing world look like after this is all over?
This is really anyone’s guess, of course. But let’s take a moment to look back at the last financial crisis: The Great Recession of 2008 and 2009.
It seems like such a long time ago now, but if you’re reading this right now, you most likely saw or felt the impacts of that recession profoundly. American households lost roughly $19 trillion of net worth by the end of 2008 – and companies of all sizes suffered too.
Have you ever seen footage of the aftermath of a volcanic eruption? These explosions are so terrifying, so destructive, that they seem to destroy everything in their paths.
But in the weeks and months that follow, the landscape comes back to life in stunning fashion. In fact, it comes back lusher and more vibrant than before – because things that grow near volcanoes are adapted thrive in the ash.
Startups are exactly the same. They’re nimble, adaptable, and they thrive on disruption. The Great Recession produced some of today’s largest and most successful companies, like Uber, Airbnb, Slack, Square, Dropbox, Glassdoor, and many more. Someday, we’ll look back on this crisis and see that it, too, paved the way for the titans of tomorrow.
What can we all do to make sure we stay safe right now?
The absolute most important thing is to keep yourself and your family safe physically. Practice social distancing. Do your part to flatten the curve so that our healthcare system isn’t overwhelmed. Help your neighbors (from a safe distance). Lean on your Local Chapters for support and guidance.
This is something we haven’t lived through before. The toll it may take on us all, both physically and mentally, could be enormous. So please… do what you can to stay safe and keep your spirits up. Try to keep your eyes on the horizon. This will pass eventually.
On the financial side of things, my advice is to stay true to your strategy. The tools you can find here, the 1,000X Formula, the expertise of your fellow investors – it’s more important than ever that you take advantage of these resources to make careful and calculated decisions.
Don’t be scared. There are still great companies out there, and many more will come. I want you to be picky, to poke holes in them however you can. If they’re still in good shape after you give ‘em your worst, they might just be worth the investment.
If you haven’t yet, I recommend checking out this month’s Virtual Boardroom Meeting and Master Class for more in-depth information on our deal flow and strategy during this crisis. You can find both in the Media Room.
And feel free to reach out to me anytime. I’m here for you. You can reach me at email@example.com.
We’ll talk soon.
Until next time,