The New York Times tells of the difficulties new start-ups are having finding angel investment. It’s not surprising of course – a number of angel investors have seen their own net value drop hugely since the onset of the economic meltdown so why would they not be reluctant to pour cash into high risk endeavours.
But there is more going on than just the economic climate.
I heard recently from a serial entrepreneur who has had a number of previous angel investments. He’s giving up on the entire angel scene – not so much because of the economic crisis, but more because in his word, start-ups “just keep coming back for more money”.
Now of course that particular angel investor could be criticised for not ensuring sufficient structure was in place in the start-up to use the money wisely and keep the business accountable and transparent. but reading some of the examples in the New York Times I came away feeling both that angel investors have been reckless, and that start-ups have very much been “riding the gravy train”.
First up was TwoSmartDogs a start-up out of Los Angeles who managed to raise USD715000 from eight investors for its online hub for adult education classes. Look at the site and then have another look at the amount invested 715k! Questions;
- How the hell did they blow so much cash in little more than a year on such a seemingly simple offering?
- Why did eight apparently sane people put up close to USD100k for a business with (apparently it seems) no real clue?
- Given that adult education is a sector that hasn’t been hugely affected by the downturn thus far, why were TwoSmartDogs not able to use the cash to get to revenue after all this time?
Not surprisingly, when the founders approached current and new investors for more capital in September, they were met with silence.
If a global financial meltdown is what it takes to bring some sanity to investment, then maybe it’s not such a bad thing after all.