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Tuesday, Dec 6, 2022

A Vision For Post-Pandemic Investing

Never in my life have I thought that I would be faced with a global pandemic.

I’ve lived through many economic downturns as both a bootstrap entrepreneur and an angel investor, and witnessed fellow entrepreneurs find fortune and misfortune as a direct result of those forces beyond their control. Because of the momentous impacts of COVID-19, many sectors have had to adopt new ideas and mindsets to ensure survival.

Countless organizations have been blindsided by the coronavirus-imposed changes to business operations. Some were better positioned than others. Educational institutions that had little or no experience with digital learning were hit hard and had to move quickly to prevent lapses in education, while e-commerce retailers were more comfortably positioned and have maintained comparatively normal operations or even thrived.

I am confident that businesses will resume normal operations. When that may be is unclear.

According to an ongoing Small Business Pulse Survey by the U.S. Census Bureau, an average of 44% of recent respondents across multiple sectors believe it will take more than six months for operations to return to normal.

Whether it is three months, six months or 10 months, it is imperative that we use this time to take stock of our own industries and prepare them for future unexpected disruptions with lessons learned during this pandemic.

Regarding the private equity sector, I was pleased to learn that after states issued stay-at-home orders, many investment groups—including locally-based Tech Coast Angels—were quick to continue to screen entrepreneurs and view startup pitches virtually. This decision to adapt rather than withdraw, despite the long-held belief by many that an investment deal cannot take place without an in-person meeting, is a fresh reminder that the investment and entrepreneurial community innovates through adversity.

Many of us, myself included, got our start as tenacious entrepreneurs before becoming investors. So, we of all people should know that continuing to innovate, despite a pandemic, is our only option. After all, do we invest in startups based on the physical location of the entrepreneur or based on the quality of their idea and their passion for bringing that idea to life?

Whether angel groups or venture capital firms are using Zoom or other video conference tools, initial feedback seems to suggest they are an effective alternative to in-person pitches. That said, I do not see virtual screenings as a temporary fix to the problem at hand, but rather a shift toward a more inclusive, forward-thinking and flexible new investing landscape. This is not to say that physical meetings will not be important, as a hybrid format is likely to be the new standard.

The industry’s adoption of a hybrid format may be the nudge that angel investors need to move to a more connected and syndicated approach that will allow entrepreneurs to raise larger rounds faster. Although there has been some syndication in a regional sense, the angel investment community has not adopted it in a significant way, with angel investors slow to invest outside their geographical area.

I created the Angel Syndication Network, which includes over 40 angel groups, through Tech Coast Angels to solve this problem. As a result of the pandemic, we have seen online attendance double and more angel investors see deal flow from outside their area. The Angel Capital Association, an industry alliance of angel groups across North America, has escalated an effort to move syndication to the forefront.

Angel investors are fortunate to be in a position to have time to plan how to emerge from the pandemic and how the landscape of angel investing will look for the next decade. I believe we are at an inflection point in our industry; our circumstances have provided us the opportunity to move past old habits. I propose that virtual pitches and screenings become not just an option during the pandemic but a key component of all angel groups now and beyond the pandemic.

I ask of you, fellow investors, when the world begins to transition back to a familiar level of normalcy, to move to a more syndicated model to help entrepreneurs raise larger rounds, complete their funding quicker, and help angel investors diversify their investments outside of their geographic area.

Editor’s Note: Through early stage funds and direct investments, Richard Sudek is involved with more than 100 startup companies, which includes Tech Coast Angels and Golden Seeds funds and direct investments in Kast and Athira Pharmaceuticals.

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