From a global pandemic and supply chain disruptions to a labor shortage, bear market and the highest interest rate hikes in decades, a lot has happened since Jacksonville-based angel investing group JaxAngels formed only three years ago.
With more than 40 members, JaxAngels has an average single investor check size of $35,000, and it has completed more than six rounds for four medical technology and financial services companies, totaling $1.2 million in investment from the group. JaxAngels looks to increase its size to a “soft goal” of 100 members. A typical investment size for them is between $250,000 and $500,000 right now, they say, though $1 million shouldn’t be too much of a stretch as their membership numbers rise.
To better understand how the changing economic landscape — including a bear market and fear of recession — is affecting start-ups and angel investing groups like JaxAngels, the Business Journal sat down with JaxAngels members Joshua Shuck and Nhat Nguyen.
How have the angel investing and start-up environment changed since JaxAngels formed in 2019?
Shuck: The number of start-ups has exponentially increased, from the gig economy to the work-at-home economy to not being absolutely tied to one job and one employer forever. So I think over the last couple of years there’s been this resurgence of people who, because of Covid, because of lockdowns, because of layoffs, are reevaluating: ‘What strengths do I have other than just being an employee?’
I think there’s been this big increase in entrepreneurship [also because] access to capital has never been easier with interest rates being so low.
So now that interest rates are climbing — we just saw the sharpest hike since 1994 — do you see all that changing?
Shuck: Well, I don’t know how high they’re going to go. I think that for the last couple of years, with interest rates being so low, there’s been a lot of cash available [for start-ups] because money is easier to come by. So we’ve seen [that] people who have had success with interest rates low want to keep cash moving.
I’m no economist, but I would expect that as interest rates move up, people are going to hold onto cash tighter, invest it into their own businesses, into more safe things, so we as a group have to be thoughtful, to protect from cash and make good investments because the cost of money is going to go up.
So has JaxAngels started adapting to that and moving to safer investments?
Shuck: Not really, not yet. We’re not super risky right now. As a group, we say ‘no’ a lot.
Nguyen: I wouldn’t say we do enough volume to say that we’ve contracted. We’re still growing, so I would say we’re actually investing more.
Shuck: But that’s probably unique for us. Every member that we attract that wants to be a part of this journey we’re going on, moves the needle, gives us more assets to invest.
What are the most common mistakes start-ups make when coming to you for investment?
Nguyen: A lot of the ones that we pass on are too early to be asking for capital. That’s the majority that we pass on — you haven’t done enough, there’s no proof of concept, your understanding of the market still needs to be more researched.
Shuck: There’s two things that we talk a lot about after an initial interview. One is, what’s your ask? If you’ve got a great idea, but it’s just an idea, you’re going to have a hard time getting an investment. If you’ve got a great idea and you’ve already taken it a good distance and acquired a mountain of debt and a series of mistakes, it’s going to be hard for you to get an investment. It’s hard to know, but there’s a sweet spot in the timing of your traction where you’re ready to launch, you’re ready to ask for money, and money will solve the problem because you just need to fuel that fire.
The second thing we see from founders is they love and are passionate about their product, but we, as an investment community, may not understand the problem [it’s solving], may not understand the product, may not understand the market. And so, we hear a lot of time talking about really, really specific details about something when what we need to know is, is this a real problem? Are you the real solution? Do you have a market, do you have traction? Can we help you?
We don’t have to understand every nuance of your back-office code to believe that you’re a good company with a good product that we can help you with.
