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TCT Exclusive: The Angels' Guide to Private Markets in 2021

While everyone is rushing to add “Angel investor” or similar tech-y accolade to their Twitter bio, it’s important to understand your options for investing in 2021, as it might look different than in 2020.

Whether you’re looking to write your first Angel check, buy secondary shares of a private company, or invest in a newly minted tech IPO, rising investors are faced with a slew of options for deploying capital.

In August, The SEC updated their accredited investor definition, opening up private markets to people who may not have previously qualified via the liquidity or income rules. How can you qualify? Pass the Series 7, 65, 82, or satisfy other financial literacy requirements (ie working at PE or VC firm), and you’ll be an accredited investor.

With this shift in access to private markets also comes a shift in private market liquidity. Companies like Carta are creating private markets for companies to allow secondary transactions on their cap tables. Unlike before, private companies will have paths towards liquidity sooner than traditional M&A or IPO exits (which may be 7-10+ years), and there will be more buy-side access to invest in private companies.

However, a majority of private investments today still remain mostly illiquid, and some platforms are only available to institutional investors. We’re hoping this changes soon.

Here at The Cap Table, our mission is to help you get, and stay, on the cap table. We’re hopeful that these industry tailwinds will make it easier for accredited investors to participate in these markets in the future, possibly even later this year, and help you get on the cap table.

This week, we’re deep-diving into the state of private (& public) capital markets for 2021, and what you need to know if you’re planning on participating as an Angel investor to help you best prepare.

The Angel Status Quo: “Who you Know”

Traditional Angel investors today rely heavily on their networks to source deal flow. The two biggest tools in your kit are going to be AngelList and LinkedIn.

New(ish) platforms like NFX Signal allows you to meet other investors (Tinder meets LinkedIn), which is a critical part of accessing deal flow: getting access to a founder network.

First-time Angels typically source deals from friends, family, colleagues, and by attending pitch days and (now-virtual) networking events.

Here are some events you should know in 2021:

Investment Structures: Play it SAFE for early rounds

Angels are typically “first money”, investing in a friends-and-family or a formal Angel round. Some “value-added” Angels can get checks into pre-seed and Seed rounds, while quasi-VC Angels, Angel groups, or VCs investing from their own balance sheet can get into later-stage deals.

In our deep dive, “Let’s Talk About SAFEs”, we discuss how SAFEs can benefit Angels in early rounds:

Newest Trends for Angels? Syndicates and Rolling Funds

Syndicates allow Angels to participate in VC-led deals. A syndicate is a Special Purpose Vehicle (SPV) created to make a single investment. Like general partners at a VC fund, Syndicate leads source deals, run due diligence, and secure capital. By investing in a syndicate, you can outsource work and participate in the upside as an investor.

Rolling funds are a new structure that allows for GPs to begin fundraising and allocating capital immediately via a quarterly subscription from LPs. Accredited investors can gain more diversification in private investments by accessing a professionally-managed fund. Want to read more about Rolling Funds? Check out our overview.

Other platforms to invest in Private Markets

There are other ways to access private companies than investing directly as an Angel in an early-stage round of financing. These may be more suitable for newer investors, or investors with less liquid cash to invest in startups.

New Trends in Public Markets?

The pinnacle achievement of any Angel’s portfolio is an exit, preferably an IPO - just ask Jason Calacanis about his Uber returns of 2,000 to 4,000x. However, “going public” in 2021 won’t be as straightforward as an IPO every time.

2019 and 2020 saw a slowdown in overall IPO volume, as companies opted to stay private for longer. However, S-1 filings are heating up, and 2021 could be the year for many to see a public market exit.

Here are some trends for 2021 Angels hoping for a public exit should know:

Regardless of which investment vehicle you decide to invest in, ensure you are comfortable writing this off as a loss (or, learning a lesson as we like to call it).

Lastly: remember to always (always) do your own diligence.

Read More:

Deal News 9/5-9/11

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Seed

Series A

Series B

Series C

Series D

Series E

Sources: Crunchbase, Twitter, LinkedIn.

NOT INVESTMENT ADVICE:

This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on our Newsletter constitutes a solicitation, recommendation, endorsement, or offer by TCT or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. As always, defer to your attorney, accountant, and financial advisor for securities advice.

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