Policy Brief: Leveraging Our Better Angels

Inhabiting the zone between crowdfunding and venture capitalists, angel investing plays a critical role in the startup-financing ecosystem.

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Inhabiting the zone between crowdfunding and venture capitalists, angel investing plays a critical role in the startup-financing ecosystem. It fills a huge investment gap for Oregon’s startups, often providing funding during precarious product-development stages for a company. 

Because angel investing is poorly tracked, it’s difficult to quantify its impact precisely, but there’s plenty of evidence the impact is huge in Oregon. According to PitchBook data, investments in early-stage Oregon startups jumped dramatically in the last decade, totaling about $56 million in 2016 and peaking in 2021 with over half a billion dollars. As the economy slowed in 2022, so too have investments in startups, but the landscape is still far more promising than just a decade ago.

The dollars tracked by PitchBook often come from institutional investors, but with the number of companies getting investments doubling over that same period, it’s reasonable to infer that angel investing went up significantly as well. The University of Oregon report “2022 Oregon Capital Scan” notes that “angel investor data should be evaluated as generally reflective of the [early-stage investment] activity in Oregon.” Anecdotally, this also seems to be the case, judging by the growth of organizations supporting the startup ecosystem in Oregon, such as the Oregon Entrepreneurs Network, Technology Association of Oregon and TiE Oregon.

Most companies begin with the same “investor”: Visa. But after the credit cards are maxed out, and the friends-and-family loans and investments are exhausted, startup companies often look to a slightly more formal stage of financing. Angel investors offer an opportunity to get larger investments or loans, with the benefit of continuing to work with individuals rather than the formality of dealing with a firm.

Angel investors are made up of individuals who put money into startup companies, usually in amounts under a million dollars, while adding value at an ideal stage in the company’s life cycle. This is the stage when companies have moved from the back-of-the-napkin idea to actual product development. At this stage, expenses usually increase dramatically, as the startup needs facilities, employees, equipment and business services. Many VCs don’t invest in this stage of a startup, so angel investors play a critical role.

Often, angel investors — aka angels — come from the same industry the startup is seeking to enter, or at least they have knowledge of the industry. This knowledge allows many angel investors to have a more hands-on role with their investments, acting as mentors or even filling corporate management roles. Angels also help startups make connections and pay attention to business-entity requirements, such as financials and office-rental agreements. Ultimately, angels help pave the way for larger investments from institutional investors and VCs.

And, of course, everything has its cost. The amount of equity a startup must give away in order to gain an investment is typically inversely proportional to the growth of the company, so startups may have to give up a bigger chunk of the pie to bring in their first angel investor when they are small. Angels usually invest in the five or six figures, not millions, so it’s still important to carefully consider the value of an angel investor. When you consider that the relationship between an angel and a startup is often closer out of necessity than you’d see with a bank, for example, angels especially should be chosen wisely.

Financial resources for startups in Oregon used to be pretty grim, but the landscape has been growing by leaps and bounds in the past decade. There are usually fewer than 25 VC firms in all of Oregon, but just a generation back, there were only a handful. Still, many of Oregon’s VC firms are highly specialized and only work in narrow fields or eligibilities. There’s also only about 40 banks with physical branches, with a third of those having three branches or fewer. So while financing options in Oregon have greatly expanded over the past 25 years, options are still limited. Angel investors help fill those gaps.

Most early-stage investment dollars in Oregon go into B2C (business to consumer) products, technology and health care/bioscience, according to the PitchBook data. While that’s encouraging if your startup is in one of these vertical markets, the need for angel investors outweighs the supply. Most universities in Oregon have active startup-
development programs for entrepreneurial students, and the best student ideas often compete in PSU’s Invent Oregon  for small grants. In addition, private and publicly funded business incubators and accelerators are cultivating new companies. All of these programs churn out startups that need angel investors.

To help spur angel investing, regional investment clubs have popped up in major urban areas of Oregon, although admittedly with limited consistency and success. However, their ranks are bolstered by several innovative nonprofits that have stepped in to play a significant role in energizing the early-stage investment opportunities for angels.

For example, for several decades OEN has organized Angel Oregon events in specific areas of the Oregon economy, such as tech or food. In collaboration with several investment partners, including Business Oregon and the Oregon Community Foundation, they added a bioscience event in 2022 that concluded in a $300,000 investment in Portland startup Biomotum, Inc. OEN’s events allow individual angel investors to contribute to a pool, in $5,000 increments, which is invested in the winner of a pitch event after several months of educational content and due diligence. Not only do such events provide meaningful resources to Oregon’s startups, but they allow anyone to get involved with angel investing at a very low entry point.

To learn more about angel investing, get involved with a local investment group, or contact organizations that provide investor education resources, such as OEN, TiE Oregon Angels, The Silicon Forest, the Technology Association of Oregon (TAO), RAIN Catalysts and many others.

John Williams is a former board chair of the Oregon Entrepreneurs Network and a lifelong entrepreneur. While still an undergraduate at UC Berkeley, he started his first software company. He’s been an angel investor in more than a dozen companies from a wide range of industries, from biotech to outdoor recreation.