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Now is the best time to be an angel investor (let me show you how)

I’ve been getting a lot of questions about the impact the coronavirus will have on startups and angel investors, so I thought I would tackle the issue head-on in this essay.  [ Click to Tweet (can edit before sending): https://ctt.ac/NBz9K ] Giant disclaimer up top that (obviously) everyone’s safety and well-being is the most important … Continue reading Now is the best time to be an angel investor (let me show you how)

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I’ve been getting a lot of questions about the impact the coronavirus will have on startups and angel investors, so I thought I would tackle the issue head-on in this essay. 

[ Click to Tweet (can edit before sending): https://ctt.ac/NBz9K ]

Giant disclaimer up top that (obviously) everyone’s safety and well-being is the most important thing right now. Full stop. However, everyone knows that the second and third-order effects of this pandemic will be the economy.

The economy means people’s jobs, and people’s jobs are how they provide food, shelter, medicine, education, and safety for their families. 

We lose jobs and some people will lose their safety, be it in the form of housing, food or medicine — let alone the mental health crisis that can come from being unable to provide for yourself and family.

With that disclaimer out of the way, I want to talk about investing in startups, which is what drives the economy through job creation. I’m sure some snowflakes out there will try and cancel me for talking about investing in startups right now, but those same snowflakes will attempt to cancel me on their iPhone while on Twitter and getting their food delivered from DoorDash (aka startups backed by angel investors).  

In this quick essay, I want to explain why I believe that NOW is the best time to start angel investing. I encourage you to do so intelligently, slowly and with a strategy, which I will also talk about here. 

Background: The most important thing I’ve learned about investing in startups over the past decade is that your results will vary radically depending on when you started investing. I was very lucky to have started angel investing in 2008 during the Great Recession as a Scout for Sequoia Capital. 

At that time the valuations for startups like Uber and Thumbtack were $10m — combined! 

For the past couple of years, startups run by founders who aren’t qualified enough to make a cup of coffee for Travis and Marco were demanding $15m valuations for copycat ideas with anemic performance. 

A hot market filled with easy money makes everyone think they should start a company — which is completely reasonable. 

I believe that we’re headed back to 2008-2010 valuations this year and it’s going to be fantastic for angel investors who are brave enough to place bets. 

Nothing is guaranteed, and you can insert a bunch of financial disclaimers here, but candidly I’m planning on being more active in the next 12 months than I have been in my 10-year history as an angel investor. 

If you’re rich and bored, or maybe even retired and regretting it, I would like to make the case for you to become a half-time or full-time angel investor. 

Now, I don’t think you should invest 100% of your capital in startups this year.

However, I think rich people (aka accredited investors who have capital available) who become full-time angel investors this year should build an intelligent plan to deploy a fraction (1-10%) of their net worth. 

Essentially, the amount they can afford to lose. 

In my book ANGEL I explain a way to do this intelligently that goes like this: 

  1. You want to make 30+ investments so you have a chance at an outlier. 
  2. You want to only invest in startups that have products in market and revenue already — and there are thousands of them. 
  3. You want to make very small bets when you start and then go 2-10x on the winners. 
  4. You want to make those 30+ investments over a three-year period. 

Here’s some basic math on the plan I recommend.

  1. You have a net worth of $10m. 
  2. You allocate $450,000 for angel investing. 
  3. You invest $10,000 into each of the 30 startups ($300,000). 
  4. You invest the final $150,000 into your top five startups ($30,000 each).

In this model, $200,000 of your $450,000 invested will go into the top five startups. 

You can assume in this hypothetical model that you will get $0 from the 25 you didn’t follow on with, and then if one of the other five pays off 25x on the initial investment ($10,000 * 25x = $250,000) and 10x on the second investment ($30,000 * 10 = $300,000) you are in the black already. 

This is not guaranteed, obviously, but if you talk to folks in Silicon Valley with over 30 angel investments you hear stories of outlier investments and power laws often.

In this example, if you lose it all, you lost 4.5% of your net worth, which is not fun but is survivable (heck, if you’re in the markets right now you’ve probably experienced “losing” 20% of your net worth in a week or two). 

You can strategize various scenarios for angel investing based on your time frame, goals, chip stack, age, dedication level and risk profile.  We discuss all of this in the Angel.University course. 

Just two examples from our investments:

  1. Calm is valued at 153x for us.
  2. Uber, an outlier of all outliers, is 2,000 to 4,000x+ (depending on when/if you sold).

If you want to learn how to become an angel investor, come to a virtual edition of Angel.University which we will host on April 7th. 

We have 100 slots for accredited investors, apply here: http://angel.university 

We are asking for a suggested donation of $100 per person for Angel.University: 100% of which will be donated to coronavirus-related causes like https://feedingamerica.org and https://covid19responsefund.org 

In short, based on my experience, the next six to 12 months could be the best time to start angel investing since the Great Recession. 

I could be wrong, this crisis could last a couple of years or as short as three months, but I know that angel investing is an amazing vocation if you’re passionate about entrepreneurship, technology, and innovation. 

Early-stage startups will be on sale as capital markets constrict and funding sources slow their pace of investing and lower their slug sizes.

Fortunes are made in the down market and collected in the upmarket. Let’s get to work. 

All the best, Jason

Source: https://calacanis.com/2020/03/27/now-is-the-best-time-to-be-an-angel-investor-let-me-show-you-how/

Private Equity

Boston startups expand region’s venture capital footprint

This year has shaken up venture capital, turning a hot early start to 2020 into a glacial period permeated with fear during the early days of COVID-19. That ice quickly melted as venture capitalists discovered that demand for software and other services that startups provide was accelerating, pushing many young tech companies back into growth […]

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This year has shaken up venture capital, turning a hot early start to 2020 into a glacial period permeated with fear during the early days of COVID-19. That ice quickly melted as venture capitalists discovered that demand for software and other services that startups provide was accelerating, pushing many young tech companies back into growth mode, and investors back into the check-writing arena.

Boston has been an exemplar of the trend, with early pandemic caution dissolving into rapid-fire dealmaking as summer rolled into fall.

We collated new data that underscores the trend, showing that Boston’s third quarter looks very solid compared to its peer groups, and leads greater New England’s share of American venture capital higher during the three-month period.

For our October look at Boston and its startup scene, let’s get into the data and then understand how a new cohort of founders is cropping up among the city’s educational network.

A strong Q3, a strong 2020

Boston’s third quarter was strong, effectively matching the capital raised in New York City during the three-month period. As we head into the fourth quarter, it appears that the silver medal in American startup ecosystems is up for grabs based on what happens in Q4.

Boston could start 2021 as the number-two place to raise venture capital in the country. Or New York City could pip it at the finish line. Let’s check the numbers.

According to PitchBook data shared with TechCrunch, the metro Boston area raised $4.34 billion in venture capital during the third quarter. New York City and its metro area managed $4.45 billion during the same time period, an effective tie. Los Angeles and its own metro area managed just $3.90 billion.

In 2020 the numbers tilt in Boston’s favor, with the city and surrounding area collecting $12.83 billion in venture capital. New York City came in second through Q3, with $12.30 billion in venture capital. Los Angeles was a distant third at $8.66 billion for the year through Q3.

Source: https://techcrunch.com/2020/10/23/boston-startups-expand-regions-venture-capital-footprint/

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Private Equity

Alternative Investments/Real Estate: Housing Market Demand Is “Insane”

Speaking to CNBC on Power Lunch, Glenn Kelman, CEO of real estate brokerage Redfin (NASDAQ: RDFN), said he expected the current boom conditions in the housing market to last well into next year. He attributed the high demand to affluent professionals looking for remote homes as well as low interest rates. Also, he thinks some sellers will put their properties on the market only after the presidential election.

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Alternative Investments/Real Estate: Housing Market Demand Is “Insane”

https://platodata.net/wp-content/uploads/2020/10/alternative-investments-real-estate-housing-market-demand-is-insane.jpg

Redfin CEO Glenn Kelman says the boom could last into next year.

Speaking to CNBC on Power Lunch, Glenn Kelman, CEO of real estate brokerage Redfin (NASDAQ: RDFN), said he expected the current boom conditions in the housing market to last well into next year. He attributed the high demand to affluent professionals looking for remote homes as well as low interest rates. Also, he thinks some sellers will put their properties on the market only after the presidential election. (CNBC)

Kelman: Too good to last forever

“This level of demand is absolutely insane. I would expect it to last into 2021, at least,” Kelman said.

Recent data from the National Association of Realtors shows up the strength in the housing market.

Existing home sales shot up 9.4% in September beating expectations. Even though the median purchase price of a home rose approximately 15% year over year, there is just a 2.7-month supply of for-sale homes, showing tight market inventory conditions.

The 30-year fixed-rate mortgage averaged 2.80% for the week ending Oct. 22, down from 2.81% in the previous week and 3.75% a year ago, according to the Freddie Mac Primary Mortgage Market Survey. Therefore, mortgage rates crept even lower in the latest week.

However, “there’s no way it can last forever,” Kelman warned of the bullish conditions.

Canada: Off the charts

Meanwhile, at the northern neighbor, home sales activity in September is described as “off-the-charts.”

Housing data released by the Canadian Real Estate Association (CREA) last week showed a nationwide year-over-year increase in sales of 45.6%.

This was a new all-time monthly record for the third month in a row.

“This is starting to sound like a broken record (about records being broken), but Canadian home sales and prices set records once again in September … as they did in July and August,” said Shaun Cathcart, senior economist at CREA, in a statement.

Real Estate ETFs in the U.S.

The year-to-date performance of some real estate ETFs is shown below:

iShares U.S. Home Construction ETF (ITB)              +24.61%

SPDR S&P Homebuilders ETF (XHB)                          +20.83%

Vanguard Real Estate Index Fund ETF                      -13.91%

It may be noted that despite the boom conditions in housing, real estate ETFs and stocks have declined in recent days.

According to Barron’s, this may be due to yields on the 10-year and 30-year Treasuries moving higher in recent weeks.

Other reasons could be fears of inflation ticking up in the future amidst an improving economic situation.

Nevertheless, the view is that interest rates are likely to remain low for longer. So demand may remain strong.

“Part of what is fueling this boom is that the economy has just split into two and rich people are able to access capital almost for free, so, of course, they’re going to use that money to buy homes,” said Redfin’s Kelman.

Related Story:   Mortgage Rates Set Another Record Low; Real Estate ETFs Could Benefit

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Source: https://dailyalts.com/alternative-investments-real-estate-housing-market-demand-is-insane/

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Private Equity

Asda’s new owner EG Group seeks new leadership ahead of IPO – report

EG Group is owned by the billionaire Issa brothers and the private equity firm TDR Capital, who teamed up for a £6.8 billion takeover of Asda last month

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UK grocer Asda Group’s new owner EG Group is looking for a new chairman and independent directors as it prepares for a £10bn initial public offering, The Timesreports.

EG Group is owned by the billionaire Issa brothers and the private equity firm TDR Capital, who teamed up for a £6.8 billion takeover of Asda last month.

The move comes after Deloitte resigned last week as the company’s auditor because of concerns over the group’s governance and lack of internal controls, according to the publication.

A decision on candidates will be taken before the end of this year, although roles haven’t been finalised yet as the company is in the process of deciding whether to float in the UK or the US, The Times reports.

Write to Barcelona editors at barcelonaeditors@dowjones.com

From Dow Jones Newswires

Source: https://www.penews.com/articles/asdas-new-owner-eg-group-seeks-new-leadership-ahead-of-ipo-reports-20201023

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