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

Everyone should angel invest.
— Sahil (@shl) September 9, 2020

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:

Many of you are interested in angel investing. It's definitely described as fun by many.

See this 👇 thread to learn how to angel invest responsibly!

Subscribe to the Startup Investing Newsletter to read subsequent posts on this topic. https://t.co/JCTyH0MnAK
— [email protected] (@atShruti) September 10, 2020

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:

Less negotiation time = less closing costs and legal fees
No Qualifying Transaction hurdle blocking the equity conversion
SAFE investors get the benefit of a discount and/or valuation cap (similar to convertibles), which can increase value in their investment.

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.

Drafting a new post "Do Employee led SPVs still make sense? If so, am I the right person to evangelize them?"
— Harvey Multani (@HarveyMultani) September 6, 2020

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.

AltoIRA - invest in Alternative investments using your IRA.
EquityBee - invest or sell employee stock options.
EquityZen - Invest or sell shares in the secondary market via EquityZen funds.
Forge - invest or sell employee stock options.
Republic - invest as little as $10 in private startups.
Wefunder - invest as little as $100 in startups and small businesses.

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.

2020 Is The Year Of The SPAC https://t.co/1domW4WSeg via @crunchbasenews
— Cenk Sidar (@cenksidar) September 11, 2020

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:

Direct Listings (DPOs): unrestricted liquidity and no lockup period. Slack opted to go this route, although DPOs have caught the ire of investment bankers losing out on IPO fees.
LTSE: Lean Startup Founder Eric Ries launched the Long Term Stock Exchange on September 10th, 2020. LTSE will encourage longer-term holding periods by introducing time-based vesting for voting rights, encouraging investors to hold for longer periods of time.
SPACs: Special Purpose Acquisition Companies, or SPACs, are companies created with no purpose other than to raise money via an IPO/reverse merger/acquisition. Virgin Galactic, and most recently, Opendoor, are two SPACs formed by Chamath Palihapitiya and Social Capital.

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

EDITOR’S NOTE: For the price of 2 lattes a month, consider subscribing as a paid patron, or sharing our content with your Twitter, LinkedIn, and other networks! Your patronage and networks help us grow!

Seed

Oyster raises $14,000,000, led by Monashees, SV Latam Capital | Post-delivery tracking of direct mail
Totient raises $10,000,000, Totient is an AI-driven biotechnology company that leverages tertiary lymphoid structures.
BoostUp.ai (Contextual Revenue Intelligence Platform) raises $6,250,000, led by Canaan Partners | Goodbye, opinions. Hello, contextual Intelligence. Drive predictable revenue through efficient & reliable forecasting.
Manifold Bio raises $5,400,000, led by Playground Global | Manifold Bio is building a protein barcoding platform to bring the power of multiplexed measurement.
Britive raises $5,400,000, led by Upfront Ventures | Britive delivers complete privileged access protection for the cloud.
TradeLanes raises $4,000,000, led by S2G Ventures | TradeLanes is a technology company that automates supply chain for traders, shippers, and merchants.
Silk and Sonder raises $3,600,000, led by Redpoint | Silk and Sonder offers a monthly subscription program that includes a hand-curated journal with pages for mental health.
PopSQL raises $3,400,000, led by Gradient Ventures | PopSQL is a modern, collaborative SQL editor for teams.

Series A

Korro Bio raises $91,500,000, led by Wu Capital | Korro Bio provides an efficient and selective method for RNA editing, leveraging natural processes common to all multi-cellular organisms.
Replicant raises $27,000,000, led by Norwest Venture Partners | Replicant is an AI voice technology that solves problems over the phone, improves customer experience, and reduces cost.
Adona Medical raises $22,000,000, led by Cormorant Asset Management | Adona Medical is a privately held portfolio company of Shifamed that innovates interventional approaches for heart failure.
Sana Benefits raises $20,800,000, led by Gigafund | Sana is a better health plan for small and medium businesses. See the doctors you want and save 30% on costs.
optimize.health raises $15,600,000, led by U.S. Venture Partners (USVP) | Optimize.health is a provider of a digital healthcare platform that enables the deployment of Remote Patient Monitoring (RPM) programs.
Panther Labs raises $15,000,000, led by Lightspeed Venture Partners | Panther is a cybersecurity startup offering a platform for detecting threats and providing security insights at cloud-scale
The Pro's Closet raises $12,000,000, led by Edison Partners, Foundry Group | The Pro's Closet is a re-Commerce company that specializes in premium pre-owned bike and bike component sales.
ThoughtRiver raises $10,000,000, led by Octopus Ventures | ThoughtRiver reviews and rates contracts via a contract Intelligence engine.
CATALOG raises $10,000,000, led by Horizons Ventures | CATALOG is a developer of a data conversion and storage platform used to offer the next generation of digital data archives.
Decent raises $10,000,000, led by QED Investors | Decent offers affordable healthcare by aligning incentives to improve health, reduce costs, and put members at the center of their care.

Series B

OncoImmune raises $56,000,000, led by HM Capital | OncoImmune is a clinical-stage company that engages in the discovery and development of biopharmaceuticals for the treatment of cancer.
Casma Therapeutics raises $50,000,000, led by The Column Group | Casma Therapeutics is a biotechnology company harnessing the natural cellular process of autophagy to design new medicines.
Ouster raises $42,000,000, Ouster builds high-resolution lidar sensors for use in autonomous vehicles, robotics, and many other applications.
Chairish raises $33,000,000, led by Tritium Partners | Chairish is the design lovers indispensable online source for exceptional decor, art, furniture, and home decorating inspiration.
Deel raises $30,000,000, led by Spark Capital | Deel is a payroll and compliance platform for international employees and contractors.
Iron Ox raises $20,000,000, led by Pathbreaker Ventures | Iron Ox is an operator of autonomous robotic greenhouses used to grow fresh and pesticide-free farm products.

Series C

Melio raises $80,000,000, led by Coatue Management, General Catalyst | Melio is a human-centered B2B payments experience, tailor-made for small businesses in the US.
Truepill raises $75,000,000, led by Oak HC/FT | Truepill provides an API-connected healthcare infrastructure designed to revolutionize the patient experience.
Orchard raises $69,000,000, led by Revolution Growth | Orchard is an online platform for buying and selling residential real estate.
Everactive raises $35,000,000, led by Fluke | Everactive provides end-to-end IoT data services that unlock an age of self-powered computing.
Ubicquia raises $30,000,000, led by Fuel Venture Capital | Ubicquia is a smart city platform that provides critical services, including light control, video artificial intelligence, and public WiFi.

Series D

Zymergen raises $300,000,000, led by Baillie Gifford | Zymergen is a biotechnology company that specializes in machine learning, big data, and artificial intelligence.
Recursion Pharmaceuticals raises $239,000,000, led by Leaps by Bayer | Recursion Pharmaceuticals is a digital biology company, developing a drug discovery platform and pipeline with machine learning.
Snyk raises $200,000,000, led by Addition | Snyk helps software-driven organizations find and fix vulnerabilities in open source dependencies and container images.

Series E

Grand Rounds raises $103,000,000, led by The Carlyle Group | Grand Rounds offers an employer-based technology alternative for health care services.
Xometry raises $75,000,000, led by T. Rowe Price | Xometry offers an online marketplace that allows customers to access a network of machine shops and custom manufacturers.

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.