Investing in startups is a risky business, and even seasoned investors oftentimes steer away from up-and-coming companies. The distinct fear for many prospective investors is that any invested money is gone without a market to make it liquid again should the need arise. However, this also comes with an assumption that the investment doesn’t appreciate in value over time, and that it only changes on the event of an exit.
Thanks to AngelMD, this assumption is far off-base.
Tracking the growing value of a illiquid investment is easier than people believe — but not always available to the average investor. All AngelMD portfolio companies are required to submit quarterly reports that detail both the narrative around the company’s progress as well as semi-annual unaudited and annual audited financial statements.
The Impact of Appreciation
A savvy investor can compare a company’s financials from quarter-to-quarter, and even year-to-year to analyze the progress of the company and their investment. Additionally, the accompanying narrative from the CEO provides insight on the company’s progress towards key milestones and objectives like FDA submission/clearance as well as clinical trial results.
These reports provide investors an inside look an otherwise privately held company, but they come at a cost — most companies will only provide them to investors to invest $250 thousand or more. That’s where the benefit of syndication via AngelMD comes into play for the everyday investor: for an investment minimum of $10 thousand, we aggregate your investment with dozens of other investors to give you a seat at the table as a “Major Investor” on the company’s cap table.
While reports are a nice way to monitor your investment, many investors want to see actual appreciation in their principal balances, and that comes through follow-on rounds of investing. Most medical startups require a large amount of capital to clear all regulatory hurdles and bring a product to the commercial markets. This requires multiple rounds of financing over several years, each a different, and hopefully higher, valuation. This is where investors can see the true appreciation in their investments.
VICIS, A Case Study
A great example of this is our first syndicate for VICIS, where investors committed their funds back in January of 2016.
VICIS creates football helmets that reduce concussive impacts 20-50%. With the publicity around studies linking football with CTE, a degenerative neurological disease with a high incidence rate in football players, VICIS has been a popular startup on the AngelMD platform.
In January 2016, the company was valued at $10 million. Eighteen months later, in July 2017, VICIS has over a $100 million post-money valuation.
As a result, had you invested $10,000 in the initial syndicate for VICIS in January 2016, you would be able to measure the increase in your investment’s value by factoring in the appreciation in their valuation while factoring in for dilution as well. As more individuals invest their money at a higher valuation, your early stage investment grows accordingly and is validated by their interest level.
These are real dollar figures that represent not only the growth in VICIS’ business, but also in the unrealized portfolio gains to investors. Yes these investments are still illiquid, but through follow-on rounds of investing, the market is identifying VICIS as a valuable asset that is taking positive steps towards an eventually profitable liquidity event.
Overall, just because you cannot track an investment every day like you can on the stock exchange doesn’t mean that your money just goes out of your bank account never to be heard from until an exit 2 years down the road. There are ways to track them, and through the angelMD community, we work together to do just that. A major part of my job is to speak with our valued syndicate investors to share updates on their investments and to relay any questions you may have ot the startup executives to them and get you answers — service that would normally cost six figure checks, available to all angelMD members through the powers of syndication.
If you’d like to speak with me about the mechanics around early stage investing or about how you can get more involved in our investing process, please send us an email.
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