Will 2016 Be The "Big Bang Theory" of Angel Investing?

By: Marianne Hudson, ACA Executive Director

This post originally appeared on Forbes.com

Entrepreneurial finance has changed more in the last five years than the previous 100. The evolution is coming so quickly these days that it almost feels like the opening credits of the Big Bang Theory television show.  It may be, though, that 2016 speeds up the changes an innovations.  I can’t think of a more exciting era for angel investors.

So what does this all mean and what should we be on the lookout for? As the New Year begins, here are my top themes and questions for how the rapidly evolving world of entrepreneurial finance may impact angel investing:

  • Will valuations come back down to earth?  Will angels experience a “correction” like we’ve seen in the public stock markets in early 2016?  As the unicorn bonanza ruled Silicon Valley thinking in 2015, the valuations of equity-backed companies went up in every business stage, and angel rounds were no exception.  Angel group rounds were up to $4 million in mid-2015. This is the highest level for angel rounds ever and represents a 33 percent increase over 2014.  One can only hope investors and entrepreneurs will come to their senses, recognizing that lower businesses prices are often best for everyone.  My hope is that bootstrapping becomes cool again this year.

  • What are the REAL exit possibilities for angel- and venture-backed companies?  Will the public markets be healthy?  Early 2016 put Wall Street stock markets in dive-mode. Additionally, many venture-backed IPO company stock values were down even without the overall stock market downturn.  Hopefully this is a brief situation. More importantly, in markets like this, oftentimes the real opportunity for angels and entrepreneurs is an increase in corporate acquisitions.  Although exits in the $20, $50 and $100 million ranges don’t always attract huge media attention or shake up the larger markets, they are significant. These exits are life changing for many great entrepreneurs. Equally important they bring returns to angels who can plow more funds into other promising startups.  Several members of the Angel Capital Association benefitted from acquisitions of their portfolio companies in 2015.  When traditional exits are not an option maybe more investors will find new kinds of exits, with new deal structures based on revenues.

  • How will equity crowdfunding for the masses impact funding of early-stage companies and the entrepreneurial ecosystem? Unless you’ve been under a rock for the last several years, equity investment by unaccredited investors is the new exciting toy for many across the world.  The SEC finally passed rules allowing this type of financing last October. The result is that companies can begin raising crowdfunding money on May 16, 2016.  Angels I talk have quite a range of predictions about the impact of new crowdfunding. Views vary from positive, to outright negative, and others see it as a new way for family and friends to support companies before angels come in. The impact of the expansion of crowd funding to unaccredited investors is a true wild card. My primary hope is that any investor—accredited or not, uses a professional, educated approach. Early stage investing is complex, serious business and not for the faint of heart.

  • What are the next innovations for online platforms for accredited investors?  Some of the biggest financial innovators are leading the “accredited platforms” that have taken angel investing and venture capital to the Internet. Getting online was only the first innovation.  Last year AngelList received a $400 million investment from Chinese investors, creating the largest ever international seed fund  and providing new funding opportunities for Chinese startups.  Onevest launched 1000 Angels, creating the “world’s largest digital-first, invitation-only investor network.”  OurCrowd brought a new level of marketing expertise to connect investors and startups throughout the U.S., Israel, and beyond.  And Portfolia brought together women investing in women – including a new way to educate new women angels through the Rising Tide Fund.  These are just a few of the many new ideas in this sector.  I’m expecting many innovations in 2016 from this clever group of leaders.

  • Is this the year of social impact investing?  So many more investors and entrepreneurs are seeing the value of companies that lead to financial returns and also make a positive difference in the world. There seem to be more angel groups, platforms and accelerators focused on different aspects of social impact, from environmental products to helping businesses in Africa  Because angels invest their own money, they can choose invest is what is most important to them. This creates a nice intersection with impact investing, which brings a special satisfaction to many angels and entrepreneurs who want to work together to drive social change.

  • Will the push toward angel diversity change funding decisions? There’s no question that the angel community is growing and becoming diverse, but what will that mean for investors and the entrepreneurs they support?  There are now more ways to build investor inclusiveness, spanning from education and investing programs for new women investors, to angel groups for minority investors, to strong efforts to connect young investors.  I believe this push toward diversity will translate into a growing group of diverse entrepreneurs being funded as a result of these investors.

2016 will no doubt be a big year of evolution for angels. Although I don’t have a crystal ball to see exactly how these changes and innovations will impact angel investing – I do know they will be interesting, fresh and ignite many new and exciting ways for angel investors to help entrepreneurs build companies that fuel jobs and economic growth.  What other big themes do you think will impact angel investing this year?