Problem: One of the biggest barriers to becoming an angel investor is the uncertainty of return. It’s an extremely risky asset class and even if individuals join an angel syndicate, there is no guarantee that they receive anything in return.
Solution: This business would innovate on the financial model of angel investing and angel syndicates by creating a way for angel investors to receive a guaranteed return. This “minimum yield” of 1-3% would sweeten up the down-side while limiting the potential upside (perhaps it caps at a 1,000% return). This model would incentivize more cash in the angel syndicate market to create “micro-angel funds” while also providing an incentive for unicorn exits since that is where fund GPs would benefit the most.
The actual business itself would focus on creating an angel syndicate (or more accurately, an investable hedge fund) who’s whole purpose is to use financial tools such as government bonds and vesting cliffs to invest dynamically in companies while guaranteeing investors minimum returns that are on par with or slightly exceed inflation.
As reported by PitchBook on the topic of angel investing,
Venture capital investments slowed in the third quarter amidst pandemic-induced uncertainty, but angel investors stepped up with a greater share of investments. Overall, the startup ecosystem has shown resilience in the face of COVID-19 and other turmoil this year, according to the PitchBook-NVCA Venture Monitor Report.
Venture investment hit $37.8 billion in the third quarter, up from $34.1 billion in Q3 2019 but down from $39.2 billion in the second quarter. There were 2,990 deals (including estimates) in Q3 2020, compared with 2,920 actual deals in the third quarter in 2019. Angel investments in Q3 rose over Q2 figures, with capital invested by angels hitting $2.4 billion so far this year, while institutional seed investment rounds have fallen.
There is clearly an appetite in the market for angel investing so creating a platform that incentivizes new investors could potentially create an even more beneficial and larger market.
Monetization: This fund/business would take a percentage of carry from investments.
Contributed by: Michael Bervell (Billion Dollar Startup Ideas)