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The entire landscape of early stage startups, funding and investments is in a state of change right now, affected by many different factors and events that have kick-started this evolution.

Innovative startup ideas and talented entrepreneurs pop up from different parts of the globe and no longer flock to just one single location. Technology has evolved bringing down the initial costs of starting up a new venture. The amount of seed funding needed by entrepreneurs to launch an idea and get it rolling is in the range more investors can consider and more. Needless to say, the future of angel investing is changing and quickly! So where is it all headed?

Based on our experience, here is a summary of trends, predictions and things we see as inevitable in defining the future of angel investing:

Angel investments are going global just like our online networks - Angel investments have always come from within local networks. Family, friends, friends of friends, acquaintances or eventually a connection to a professional investing network. We are in the Facebook and social networking generation now where the technology tools to build and maintain relationships is quite easily done on an international scale. These global networks enable us to work with people across different countries, interact with them, build relationships and cross boundaries so investment decisions will also transcend geographical boundaries. We’re already seeing this in Europe.

Smaller funding requirements, lower investment related costs and larger deal pool of deal flows – One is likely to see a larger number of startups seeking smaller amounts of early stage and seed funding which opens opportunities to more angel investors. With technology platforms playing a more central role in not just connecting investors and entrepreneurs, but also managing deals, the costs of investment related costs should reduce and the pool of deal flows increase.

Seeking out a few people with plenty of money will reverse to seeking many people with less money – The dynamics of current angel investment markets dictate that a few startups with the right connections and access seek out a few angel investors with plenty of money. With a drop in the amounts required and fueled by options like crowdfunding and startup funding market places, more angel investors will come into the picture as it’s more accessible increasing the overall pool. This will also result in more smaller investments being made in many startups rather than fewer larger investments in a small number of startups.

Smaller funding rounds more frequently – The future equipped with more efficient tools and lower costs tied to investments along with the trend to base investment rounds on the momentum and ability of startups to reach and exceed milestones will see this as a norm. Rather than fewer larger rounds with more at stake should a startup fail can be replaced by smaller but more frequent funding rounds tied to the momentum the startup is able to gather with each round.

Transparency over secrecy – Over time transparency in working, dealings, progress reporting and processes is bound to overtake the ‘behind closed doors hush hush’ world of early stage investments. From going the extra length to keep ideas under wraps, discussions with startups and other investors within the board rooms and signing complicated deals these investments on top of the enabling web technologies that propel them will be out in the open and completely transparent. Business plans are more likely to be put out there in some detail, if not completely. Expressions of interest, conversations, decisions, requirements, progress, term sheets and all that investors and startups do, will be published and available for all to see. Despite the fears, this will actually bring about more confidence among all stakeholders and help bring more investors and more startups into the early stage and seed investment scenario.

More investments can be guided by democratization – One of the underlying problems with keeping everything between only the entrepreneur and the investors is that the entire decision of investment was made excluding the views, opinions and involvement of others. As the trend of a few startups secretly approaching investors turns to startups being able to list their startup plan and have potential investors connect with them, ‘other people’ will help play a role in this decision. From an investment point of view if you see an idea which has been put out to the public gather interest, evoke feedback, comments, suggestions and positive reviews even before the startup is launched, you know there is something there! People other than investors will have a role in guiding investors towards making good investments.

These are just some of the trends which are likely to drive the future of angel investment. What else do you see happening in the future in this regard?

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Tags: predictions, trends

This entry was posted on Thursday, February 24th, 2011 at 3:31 pm and is filed under Business Education. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.