Is Now the Right Time to Become an Angel Investor?
It can sometimes seem like a daunting task to take your success and turn it into something even bigger. Becoming an angel investor may be a good choice for those looking to expand their horizons while also investing money wisely. But is now the right time? With recent economic volatility, now more than ever before, there is an opportunity for savvy investors to capitalise on burgeoning investments from tech startups. By becoming an angel investor - someone who provides capital to early-stage high-growth businesses in exchange for equity - you can potentially score some great deals and maximise your return on investment (ROI).
This blog will explore this question in depth by discussing the pros and cons of angel investing and why now might be a great time to write your first cheque. Reading through this post, you'll gain valuable insights on whether now is indeed the moment to become an angel investor.
2023 Set to be a Strong Year for Early Stage Funding
Seed funding for early-stage businesses is predicted to increase significantly in 2023 due to the development of new technologies and the continued interest in innovation. After a noticeable clawback in funding in the last couple of years, there is now a growing trend towards investing in innovative, disruptive startups, with many investors searching for opportunities that are expected to provide high returns.
A survey conducted by Finextra found that 56% of institutional investment funds plan to increase their VC allocation in 2023 by on average 20%. 23% of the investors planning to increase their capital allocation to Venture Capital said that their increase in allocation would be significant. Whilst this applies to VC funds typically concerned in investing beyond the seed rounds, this is good news for angel investors planning to invest in pre-seed/seed stage startups. It means that companies who have raised early angel-led rounds should find it easier to scale through an increase in VC funding. Many other metrics also support trends of an increase in funding and growth for early startups this year. Below are some of the important data points:
- Despite the slowdown in funding, CrunchBase reported that 2022 emerged as the highest for seed funding in the years between 2019 and 2022. This is a positive upwards trend.
- According to KPMG. average seed/angel deal size increased from $1.2 million to $1.8 million between 2020 & 2022. This shows increasing investor confidence in backing early startups.
- The entire Green Technology and Sustainability market size is expected to reach $28.9 billion by 2024. The projected CAGR growth from 2019 to 2024 is at 27.1%. When it comes to technology, the largest growth is expected to be seen within the Blockchain industry. Many exciting startups exist within this space.
2023 and beyond look set to be strong years for early stage funding, which is a positive sign for those looking at making early stage angel investments. However, there are many other factors which come into play when making investment decisions. Let’s explore some other reasons as to why it could be a good time to start allocating some of your portfolio towards exciting new startups!
More options for angel investors than ever before
In the past, there has been a steep barrier to entry for fledgling angel investors, with high ticket sizes and limits on investing diversification. This has always left individuals wondering if it will ever be the right time to make angel investments. However, in recent years the early stage investment industry has undergone significant development. There are now many more investment opportunities like crowdfunding campaigns, syndicate deals, angel investment platforms and even specialist VCTs (Venture Capital Trusts). This allows many more individuals to enter the market. As such, angel investing is more accessible than ever before with lower ticket sizes and greater diversity on offer.
New SEIS allowances for UK based startups
Current SEIS allowances offer a financial incentive to become involved as an early-stage investor. The Seed Enterprise Investment Scheme (SEIS) (https://exporaise.com/seis-scheme/) allows investors to gain some tax relief on investments such as capital gains tax exemptions or reducing income tax liability. As well as offering potential benefits during uncertain economic times, SEIS provides incentives for individuals to become angel investors. These benefits include 50% of your investments in income tax relief, yearly investments of up to £100,000 and capital gains tax exemption. The scheme also offers investors the opportunity to support innovative start-ups and drive new business growth - something that has often been seen as key in helping the world economy recover from disruptive forces. So far both the SEIS & EIS schemes have been very effective at driving seed investment into promising startups.
Until now, the yearly limit that startups could raise within the SEIS scheme has been £150,000. However, the government has announced that as of April 2023, this limit will be increased to £250,000. This allows significantly more investment to be raised whilst still offering the same tax relief incentives to investors. This is yet another promising sign for investors, with general confidence in early stage businesses rising, and many new startups looking to take full advantage of this additional funding.
Exceptional access to innovative new startups
With advances in technology, new angel investment platforms make investing into startups far more accessible than ever before, giving hopeful angels the opportunity to back up-and-coming businesses around the world. These platforms remove many of the obstacles associated with traditional investment resources and allow interested individuals to invest what they can without delays or hassles. By leveraging technology, these platforms also simplify the process of identifying lucrative investment opportunities and providing investors with incentives to get involved. They often feature low fees, reduced minimum investments, built-in risk assessment tools, and personalised portfolios tailored to individual investors’ needs.
Connectd offers a unique Portfolio Management Tool, allowing investors to track performance metrics for all their investments; technology which has never before been available to investors. This access not only gives new investors greater ease and flexibility as they research potential opportunities, but also encourages them to take part in an industry that may have seemed intimidating in the past. By including entrepreneurs from all socioeconomic backgrounds, platforms like these bring more diversity and innovation into play—ultimately making it a great time to become an angel investor.
But what about the risk?
Whilst times of economic uncertainty can bring huge opportunity for new startups, there are also downsides to investing at this time. During times of economic volatility, the risks associated with angel investing are heightened, leaving all investors vulnerable to losing their money. If you do decide to pursue angel investing, beware of how much you are willing to risk. No matter how confident you may be that your investment will pay off, it’s essential to remember that the future remains unpredictable. Never invest more than you can afford to lose and make sure that the decision is made solely based on your current financial capabilities and not on trying to make easy money. Be smart, consider all possibilities and only then, should you proceed with investing.
Is it the right time?
Although there are still risks present alongside clear economic uncertainty, confidence in new startups is growing. Data shows that funding is set to increase over the coming years and with the addition of new SEIS allowances supporting growth and investment into new technology, these should be very exciting times for any angel investor. You can explore the range of exciting investment opportunities available on the Connectd platform here.