Angel Network 2018 Year End Report Shows Strong Year in Diverse Sectors
New Companies and Percentage of Investment in New Companies Near Record Highs
IRVINE, Calif.— May 7, 2019 – Tech Coast Angels(TCA) invested $10.8 million in a total of 53 companies in 2018. There was a diverse mix of investments: Life Sciences and Software were by far the largest sectors, followed by Internet/Apps, CleanTech/Industrial, Hardware, Financial, Consumer and Business. Angel membership for the network grew to an all-time high to reach 411 at the end of 2018. While the monetary amount of investment declined from recent years, 2018 still presented as a strong year for the angel network.
Seventy-six percent (76%) of 2018’s investment went to new companies, of which there were 34 – second only to the record of 37 new companies in 2016. New company sectors for investment aligned very closely with all investments, with Life Sciences, Software, and Internet/Apps sectors being the most active. The largest deal in 2018 was a new deal, Tourmaline Labs, with a TCA investment of $1.6 million.
TCA realized six exits in 2018. One Stop Systems exited via an initial public offering. Envision Solar exited as a private placement in an early stage public company. Three acquisitions led to exits: CaseStack, Ondax, and Ring Router. Investors in What Pumpkin Games were bought out by another shareholder. One Stop Systems’ 12x return (from an initial TCA investment in 2000), and CaseStack’s 15x return (from an original TCA investment in 2002) are reminders that angel investments occasionally require patience and perseverance.
TCA also increased its syndication activity through Angel Syndication Network (ASN), which shifted the geographic mix to 24% of investments outside of Southern California. TCA’s ACE Fund has influenced this change, with 19% of the fund’s investment outside Southern California in the most recent fund.
Eighty-nine (89%) of TCA’s 2018 investments were Seed or pre-Series A rounds, including bridge funding. This is a higher mix than recent years; possibly due to interest in pursuing lower valuations in seed activity as later rounds are offering less attractive valuations in the current investment cycle. Valuations are climbing to historically uncomfortable levels, which is perhaps the key factor as to why less money was invested in 2019. Thirty-eight percent (38%) of TCA’s 2018 investments were in companies with valuations below $6 million (as opposed to 69% in 2017), and TCA’s investment in deals with companies valued between $6 million to $10 million grew from 29% in 2017 to 46% in 2018. The median valuation was $6.0 million in 2018, compared to $4.5 million in 2016 and 2017.
“2018 shows us that there is a strong pipeline of new companies and new ideas seeking angel investment,” said Grant Van Cleve, Chairman of Tech Coast Angels. “We recognize that we could well be facing an investment cycle nearing its end. So we advise entrepreneurs to seek investors with experience and contacts who can help you navigate challenges, and to raise as much as you can in a current round without worrying about dilution.”
Other observations for entrepreneurs and investors include:
- Don’t cling to a higher expectation based on valuation averages of the last several years. Doing so may leave you accepting a down round during the coming down cycle, being underfunded or even unfunded and out of business
- In changing markets, VCs focus on existing portfolio companies, so have back-up plans to self-sustain your business without further investment should funding not materialize
- Stay focused. Spend wisely and frugally. If the next dollar you spend doesn’t make for a better product or better customer experience, don’t spend it
- Angels may want to consider selling public company stocks now to be able to take advantage of down-cycle new investments without selling those public stocks at lower prices in a downturn
Access TCA’s full 2018 year-end report (https://4hd0d4.p3cdn1.secureserver.net/wp-content/uploads/2019/05/TCA-Annual-Report-2018-final.pdf) for more details. The report includes a summarization of 2018, observations for the future, a list of companies added to our portfolio, and various infographics that provide greater detail.