Angel Investing Year in Review

As 2023 comes to a close, here is my take on the angel investing landscape. Overall, 2023 saw a chill on investments and deal flow due largely to the failure of Silicon Valley Bank (SVB) in March. For startups on the West Coast, SVB was the go-to bank especially those that were raising funds. “SVB and Delaware C,” were two common pieces of advice most investors would give to any and all startups.

SVB failure was the largest bank failure since Washington Mutual in 2008. Unlike 2008, SVB saw a run on the bank such as had not been seen since the 1930s. SVB had much of its cash in low-yield treasury bonds with a 2% interest rate. The rate of withdrawls forced SVB to sell the bonds at a loss. The bank then tried to raise funds on the open market, the bank could not thus the “perfect storm” failure.

What this did that that many startups were left scrambling to withdraw funds. Those that did not bank with SVB found themselves workiing diligently to make sure that they could still get paid from their customers who banked at SVB. The came First Republic, another startup bank of choice, which benefited initally but failed in May. Thankfully, regulators and banks were able to stem a systemic failure that brought the “Great Recession” of 2008. The startup community is still bobbing the wake of this storm.

Valuations of startups looking for funds remained high through the first half of the year and have only recently started to come back down. Initial buzz and lofty valuations around AI startups lingers while the market and theses startups figure out where the business is headed. Most of my time this year has been evaluating AI. Startups in AI seem to be coalescing around three areas: Models, agents and data. It is likely that the enterprise will adopt this technology similarly to cloud computing. A big question heading into 2024 for AI startups are intellectual property and regulation.

Platform technologies which allow for “agnostic” applications also have my interest. The scope and applications are broader that my experience in the enterprise. This includes diverse areas like wearables and compliance.While there are fewer of these companies pitching today, I expect to see more in 2024.