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Investment is the lifeblood of FinTechs of all stages, from start-up to scale-ups - but what role will the Angel community play as start-ups face the Covid-19 challenge?
Europe’s FinTech sector is still growing despite the current Covid-19 crisis - VCs and angel investors still have the appetite for investing in these start-ups.
Data shows that VC investments are on the rise for early-stage start-ups but angel investing has become the most sought-after type of investment, especially for early-stage start-ups.
In 2019, angel investors gave over €612m into European FinTechs, according to Dealroom. In 2020, the FinTech sector saw a significant drop from the number of deals and the amount raised right when the coronavirus pandemic hit Europe.
This data shows that the pandemic hit the FinTech sector fairly hard, but funding deals are still happening. Now, more than ever, FinTech start-ups are looking for angel investors eager to invest in innovative companies.
For angel investors, it is also time to get out there and invest and guide these new start-ups and scaleups.
Unlike VC investing, angel investing is more personal. Angel investors are usually drawn to companies offering products or services they are passionate about. They have to believe in the company and the people behind it.
What changed nowadays is how angel investors are scrutinizing their investments. Angel investors and syndicates are aware of the implications during the Covid-19 but they are still looking for opportunities to expand their portfolios.
Angel investors and early-stage startups
According to Beuhurst, in the UK between Q1 2011 and Q3 2020, 45% of equity fundraisings involving angel networks were for seed stage startups.
Angel investors can bring more than money to the table for these early-stage FinTechs - they can offer knowledge and network.
For early-stage startups, angel investing is a winning combination of bringing money in together with the angel’s expertise.
A good part of angel investors made their money through their own start-ups, and so can be an invaluable source of experience and support. They can advise on a startup road map and guide their growth strategy, based on their own past experiences.
Angel investors can also be (former) VCs that do personal/private investing and they have a great view on the market and an eye for early stage talent.
This support combined with networking is definitely a winning combination for both sides. Angel investors often share introductions with other angel investors about start-ups and early-stage businesses and interesting investment opportunities.
Angel syndicates: a more diverse way to invest
If you want to start as an angel investor, start small. That’s why angel syndicates can be a natural progression for those investors wanting to invest.
In a syndicate, you can invest a relatively small amount of money with other angels in different companies, making portfolio diversification easier. Angel syndicates are also great for networking and due diligence on the deals, it’s like most of the work is already done by experts.
Angel syndicates are an easier way for those thinking of diversifying their portfolio. Traditionally angels investors and angel syndicates tend to focus in one sector or type of company.
However, Angel Capital Association recent study showed the most successful angel investment portfolios are those with multiple types of companies and even different countries.
Diversification is not only about the number of investments. While this is a very important part of investing, it's just the beginning.
For instance, there are different types of entrepreneurs, those who are serial entrepreneurs and those that are starting a company for the first time.
Also, the stage of a company should not be a deal-breaker either. As data shows angel investors prefer to invest at the seed stage of a company, it’s important to bear in mind that interesting deals can happen at any stage - if a company is at a crucial growth stage, investing in it can be a lucrative deal.
As a FinTech angel investor with focus on digital banking, I often turn to the segment of business banking, as I think this a sub-sector is overlooked by the incumbent banks for many years. I also like to look out for business banking fintechs/neobanks, globally not limiting myself to a specific country or region.
So, even within the niche of digital banking, investing can still be diverse with several startups in this space in different markets.
Early-stage investing is an art, it has its risks but with big rewards at the end of the road.
Angel investing is crucial for early-stage startups to survive and continue to drive innovation in the FinTech sectors. Angel syndicates are paving the way for new and seasoned investors to diversify their portfolio.