Angel Investing in Challenging Times


By: Ham Lord, Chairman of Launchpad Venture Group and Co-Founder of Seraf-investor.com 

This post originally appeared on Seraf-investor.com

It’s amazing how the world economic situation changed seemingly overnight with Covid-19. One moment we were enjoying a healthy economy with a robust outlook on the future. Suddenly, a pandemic crisis sweeps over the globe creating uncertainty in all aspects of our lives. We’ve been through economic downturns before, yet this time it feels different. Being forced to live in a world of “social distancing” has changed people’s psychology because it has altered everything about our day-to-day world. 

Over the past two weeks, Christopher and I responded to this new world order by working closely with our team members at Launchpad and Seraf. Our initial focus was making sure everyone remains safe and able to take care of their families. Our second priority was to ensure we could operate effectively with everyone working from home. 

At the beginning of 2020, Launchpad brought on board two additional Managing Directors to help our angel group continue its long term success. Alex Brown and Raza Shaikh are both experienced angel investors who’ve been with Launchpad for a number of years. We are excited to have them join our management team, but never expected some of their first tasks would be to help us rethink every aspect of our daily operations.

Christopher and I tasked Alex with putting together an update and perspective piece for our members. The letter outlines some of our thoughts on how we will continue operations while we can’t hold in-person meetings. In addition, Alex talks about how we will support our portfolio companies in the midst of an economic crisis. And finally, he touches on the importance of angel investors continuing to actively look at new investment opportunities during uncertain times.

We are sharing this letter with the angel community at large so all can benefit from the knowledge we gained from over 20 years of active angel investing experience through economic highs and lows.

___________________

March 2020

Dear Launchpad Members,

It has certainly been an interesting few weeks as we continue to adjust to the evolving Covid-19 crisis. It now looks likely to extend into a prolonged period of public health, business, and economic disruption measured in many months rather than weeks.  As a global community, we face a shared threat with the potential for human suffering on a scale not seen for over a century. It has made it a particularly unusual time to “on-board” as a new member of the Launchpad staff. As a new voice on the team, I thought it may be helpful to share my perspective on why, frightening as these difficult times may be, they are not the end of the world and may even represent longer-term opportunities for us as angels. 

You, like me, may be looking at your public investments and feeling a bit less well off, or monitoring future business revenues with concern.  It would be unusual not to feel a great deal of uncertainty in this trying time. However, I take comfort in being part of the vibrant Launchpad community.  Launchpad was born out of the 2001 dotcom downturn and weathered the 2008-2009 recession in stride…we will doubtless get through the current crisis as well.

The first order of business is obviously to ensure the health and safety of every member of our community as well as their family and friends. To this end, we developed plans to “virtualize” all our key operations so we can continue our core mission without jeopardizing the health of members or entrepreneurs.  While we definitely look forward to resuming our normal face-to-face meetings once the situation allows, we are confident these work-arounds can be sustained even over a long period of disruption, if needed.

For the current portfolio, our entrepreneurs will face a difficult time over the coming months. Almost all will confront a liquidity crisis as revenues lag, sales cycles get pushed out, and potential customers understandably focus elsewhere. Many of the leaders in our portfolio will confront the stress of letting valued colleagues go to preserve the business. In addition to offering support and perspective with those challenging issues, we will be called to step up to support companies with capital and advice where fundamentals remain strong, but cash burn is more than anticipated. 

The nature of early-stage investing is that, even in good times, many of our companies ultimately fail. The current crisis will inevitably accelerate some of those failures or present an insurmountable headwind to otherwise successful companies whose operating environment has suddenly changed beyond their ability to adapt. Faced with this, each of us, as investors, will be forced to make difficult choices: act decisively to provide capital for companies where further investment makes sense; but conserve our personal resources where we fear further investment might not make enough of a difference. Regardless of how each of us proceeds with a given company, we must treat all our entrepreneurs with the respect they deserve for their efforts.  This is a central tenet of Launchpad’s unique culture, and all of our entrepreneurs have taken great risk and made personal sacrifices to build their companies. Unfortunately not all will make it through this. But the good news is that the companies that do emerge from the next few months will be stronger as a result, and positioned for growth as the broader economy recovers.

On the new investment front, even though no two downturns are identical, we take fundamental comfort from our past experience.  The holding period for our investments transcends business cycles; and past experience shows companies benefit from birth during the crucible of difficult times. I’ve spent the past three months analyzing the Launchpad portfolio from its inception, and three of our highest return investments were made during the depths of the 2008-2009 recession. More modest valuations, less competition for talent, and strong positioning for economic recovery were a rare combination to drive outsized portfolio returns. Even as the S&P 500 returned 4x over the decade following the housing crisis, our top-performing rounds returned 20-30x. Investments made in 2009 alone have already returned more than 6x the capital invested in that one calendar year.  As investors, Christopher, Ham, Raza and I remain committed to investing behind these promising new opportunities of the next recovery. We firmly believe a diversified portfolio of early-stage private investments, built steadily across business cycles, remains an integral part of every accredited investor’s portfolio.

There is no doubt we face trying times in the months ahead, but we will get through them together. As always, please let us know if there is anything we can do to help.  We are always looking for ways to improve the Launchpad process and experience; and with the recent substantial re-engineering of our normal operating model I am sure there are more opportunities to do this than usual.

Regards,

Alex Brown, and the full Launchpad management team

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