“And just like that, he’s gone”

For fans of the movie The Usual Suspects, that line captured what it was like to wake up to the investment reality of 2022.

2020 and 2021 were banner years for companies going public any way they could, including SPACs, which skyrocketed in popularity in 2020 but had fallen back to earth by the end of last year.  These exits provided returns to their investors, which resulted in more and new investors who went on to raise new and larger funds.

And now all this new money was looking for more and more investment opportunities, to which recipient companies gladly responded with rising valuations and fewer investor-friendly terms.

But as 2021 was taking shape, many of the newly-minted public companies began turning negative.  Perhaps due to investor fatigue or lackluster performance, there was a noticeable shift in the perception of what type of company would survive beyond the pandemic. The tide was turning and their still-private company counterparts, no longer candidates for quick exits, now faced longer exit horizons with less than enthusiastic investors for the now even longer ride.

2022 suddenly felt like that morning after the Vegas bachelor party you knew you shouldn’t have attended.

Investors who’ve been through such cycles before have already begun reaching out to their portfolio companies to prepare them for the long haul, and, in some cases, to renegotiate terms. Meanwhile, FOMO investors who jumped in when purple unicorns were riding on hockey sticks are leaving the public and private company investment “tourism” space in search of non-fungible and other alternatives.

But is 2022 really all that bad?

There were zero (0) biotech IPOs in the years between 2008 and 2013, and almost as many remaining biotech VCs.  Yet experienced angel investors and remaining VCs stayed the course of what is traditionally a marathon, and not a sprint. Our own group was formed in the midst of this public exit desert to focus on promising, reasonably priced opportunities that could deploy capital effectively and conservatively to reach an exit, preferably by acquisition.

So, for angel investors, 2022 could be a good year. Previously soaring private company valuations are heading towards “reasonable” again, and the FOMO-induced terms of the last few years are following suit.

I am personally hoping that two four-letter words will disappear from regular use – SPAC (Special Purpose Acquisition Company) and SAFE (Simple Agreement for Future Equity) – since both are future-directed vehicles that fail to protect their earlier investors.

Also, companies that are borne and funded in lean times already have the long-term mindset baked into them, and they have, traditionally, fared better than their cash-overfed siblings.

It may take a few more months until the dust settles, and possibly years until the good-time funds are fully invested, but, for the first time in a while, it feels like the investment prospects that will be coming our way in the near future could be promising.

So now is a good time to continue doing what we and our fellow long-term angel investors have done for years – gather the dry powder (some of which we already have in our internal Pools and co-investment Sidecar Fund), and carefully select and diligence opportunities that we will invest in and support through an exit.