Stories of Technology, Innovation, & Entrepreneurship in the Southeast

(EDITOR’S NOTE: We continue our multi-part series sharing the thoughts on the past year and the outlook for 2022 from seven angel or venture investors based in the region.)

TODAY’S QUESTION: COVID-19 has obviously had an impact on so many sectors of the economy. What specifically would you say its impact has been on the angel and venture capital sector thus far and what do you think it will be in 2022?

• Eric Dobson, Chief Executive Officer, Sheltowee Angel Network. Mediocre companies did not waste our time in 2021. Seventy-five percent of the companies that apply for funding are not appropriate for the funding they request for a variety of reasons, which is a completely different conversation. For reference, we invest in one to five percent of the companies that seek capital in any given year, which really demonstrates how competitive the process is. The strength of companies seeking capital was very high and welcome in 2021. I believe that trend will continue through 2022.
• Scott Ewing, Co-Founder and Principal Business Analyst, Appalachian Investors Alliance (AIA). For the aggregate market, the University of New Hampshire’s Center for Venture Research reported that there were significant declines in the number and total dollars invested in angel deals when comparing 2018-19 with 2019-20. Our experience matched what was happening in the overall market: the Coronavirus impact was swift at the onset, and AIA investors initially reacted out of risk-avoidance. Some declared that few or no new deals would be considered during the remainder of 2020. However, as initial fears subsided and as economic activity in much of the country resumed in the second half of 2020, our investors quickly returned to normal activity – in fact, they were eager to review new investment opportunities and fund start-ups. For 2022, it seems that the pandemic is behind us. The angel and early stage venture market for the past few quarters has experienced significantly increased deal count and record deal values.
• Tony Lettich, Managing Director, The Angel Roundtable. Early stage start-up investment grew through the epidemic, according to the Angel Capital Association’s recent “Angel Funders Report.” There are likely an assortment of reasons but from our perspective part of this growth came from the industry experiencing a migration to the virtual world. Similar to the retail sector, which saw an acceleration in the move online, early stage investors sought out other methods/technologies to facilitate their operations and activities, ultimately accelerating its transition. Communication and collaboration/syndication among groups of investors appears to have increased as well. Finally, we noticed a number of start-ups either pivoted to or were well-positioned to take advantage of market needs during the pandemic. As a result, numerous pockets of “silver linings” in an otherwise dismal COVID experience also occurred. One of those pockets appears to have been the entrepreneurial and investor communities.
• Grady Vanderhoofven, President and Chief Executive Officer, Three Roots Capital. I think COVID has had a negative impact everywhere on literally everything and everyone. However, I believe COVID also has created a scenario where people, companies, communities, systems (literally everyone and everything) have been compelled to adapt and evolve to survive and to thrive. COVID has accelerated some of the evolutions and developments that were underway and has created the need and opportunity to redirect resources (human and capital). In the United States, fiscal and monetary policy, among other factors, has created so much liquidity that the angel and venture capital sector has been and will remain active at the highest levels in history. The combination of needs/opportunities and liquidity is fueling an unprecedented level of activity and wealth creation in the angel and venture sector.
• Ken Woody, President of Innova Memphis. The whole venture capital (VC) investing space has become more selective and more about finding trusted partners with similar investment views. Very few angels or VCs invest alone anymore. We understand companies will expect to take in multiple rounds of investment, so you want partners who will commit to investing now, and in the future, plus bringing others with them as the company grows.
• David Adair, Managing Partner and Co-Founder of Solas BioVentures. COVID-19 was touched on in the answer to question number one (click here), but I will add further. I believe COVID-19 had a purge effect on marginal or zombie companies. This natural death, if you will, has eliminated a lot of pretenders. The survivors have emerged emboldened and substantially farther along, amazingly on tight budgets. It has mostly delayed planned monetization of several of our companies. It has also been a rate limiter in fund raising both for the fund itself and the portfolio companies. We all have learned the legal term force majeure and its implications. Budget negotiations have also become more contentious in that planning is scrutinized more closely and fudge factors are larger both in terms of dollars and time. I believe that COVID-19 is and will continue to assist biotech venture capital, private equity, and angel groups with great tailwinds. This is because of slushing of money, importance of bio innovation, and largely the heroic effort our industry led to get vaccine available. Spillover is only natural. I think this will remain as such for at least the foreseeable future (i.e., two to three years assuming no other macro event happens).
• Derren Burrell, President and Founder of Veteran Ventures Capital. It has had a tremendous impact in the emerging fund manager space (the more established funds have fared quite well). Emerging managers lagged established firms throughout the past year, but as we end the year, we have seen a reversion to the mean. We do see a more return to normalcy in 2022 with a sustained higher level of activity within the angel/venture capital sector, largely due to the demand for higher returns. Venture capital continually outperforms the S&P 500, and this will generate a further shift to the sector as more and more people look to gain outsized returns.

Previous Articles in the Series:

• Part 1A – A review of the past two years as well as a look into the future.
• Part 1B – A review of the past two years as well as a look into the future.
• Part 2 – Quality of deals and size of “asks.”

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