Although angel investing is not a mass issue in the Czech Republic, Czechs are among the savvy investors in startups. So far, their strategies have been largely successful. Nearly nine out of ten investors have valued their investment. Nearly 12 percent even earned more than 10 times as much on it. Two-fifths of investors consider investing in startups to be more profitable than other forms of investing. This is the result of research by DEPO Ventures, an investment group that is building a unique syndicate of angel investors alongside angel funds.
The law firm Havel & Partners and the CzechInvest agency also participated in it. The aim of the fourth year of this research, which took place in the first months of this year, was to map the environment of angel investing in the Czech Republic.
In contrast to the generally widespread rule about a large percentage of startups that fall, the survey suggests that investments so far largely end in success. Roughly two-fifths of investors (41 percent) consider the performance of investments in startups to be higher or identical to other asset classes. Roughly 40 percent of investors have already made an exit on some of their investments, compared to last year, the number of investors who sold their investments rose by more than 10 percentage points. Nearly 86 percent of them sold their stake at a profit. Most often (51.4 percent), the investment appreciated between one and five times.
Each investor accounts for an average of eight investments in startups, with an average of 2.6 investments added to each of them last year. That's despite nearly half of investors saying they were bothered by high startup valuations last year. Overall, however, they rated 2022 as a better average in terms of the quality and abundance of startups, the quality of the investment environment and the performance of the portfolio. Venture capital investments are expected this year, even though investment appetite is 12 percent lower compared to 2022. Roughly two-thirds of investors surveyed said they plan to invest at the same level this year (38 percent), significantly more 16 percent of investors plan to invest, less than last year's 13 percent of investors polled.
According to investment professionals, good investment opportunities may come this year. “It makes no sense for us to limit our investment activity now. This year we want to continue at our current pace, investing around 15 early-stage startups. The advantage is that the overvalued valuations of some startups have disappeared, especially in high countries, which distorted the entire market,” says Petr Šíma, partner at DEPO Ventures.
Angel investing is not for everyone. According to the survey, entrepreneurs (8.9 percent) usually put money into early-stage startups, and a significant part is made up of full-time investors (17.8 percent). The survey also listed seven percent of investors from among startup founders. “Successful founders support the creation of new startups in the same way as before in Estonia. The more successful startups there are, the more angel investors will be added,” adds Šíma.
For respondents, the most common motivation for investing is the desire to increase finances followed by the motivation to meet interesting people and encourage innovation. They spend an average of five years on this investment asset, and two-thirds of them spend 0-5 hours per week on investments. In addition, the research looked at what areas investors are most often involved in. Most often, it is helping founders with fundraising (49 percent), business development (44 percent), and running a business (39 percent). Every year, there are also more investors. Although they are still in the minority, there were a total of 17 percent in the current survey, which is seven percent more than in 2021.
The survey found other interesting data about Czech angel investors. Their average investment is between 25 and 50 thousand euros (600 thousand to 1.2 million crowns), more than a quarter of respondents invest more than 100 thousand euros (2.4 million crowns) per startup company.
“The Czech Republic continues to lag behind the countries of Western Europe in the number of startups per capita. But there are not a few ideas here. In addition, the DEPO Ventures survey shows that angel investors' appetite to support viable ideas is growing. But without financial support, without mentorship and without access to networks of contacts, startups can hardly move on from an early stage. Sharing know-how, investment opportunities and building awareness of how angel investing works is one of the fundamental building blocks for the further development of this segment in our country,” says Petr Kopeček, Director of the Startups Department at the CzechInvest Business Support Agency.
The majority of respondents to the survey report that they do not have a favorite location to invest in. They either have the whole world in their sights, or they don't know where the startup operates. However, only a quarter of them (31 per cent) are still concentrated on the Czech Republic. “A broader scope would enable them to reach global opportunities and increase the chances of better diversifying their portfolio,” says Šima.
The areas most invested are artificial intelligence AI (54 per cent), fintech (48 per cent) and healthtech (35 per cent). However, the individual sectors are mostly covered equally. Investors typically do not focus on one segment, but diversify massively. “Given the situation in the blockchain market, interest in startups that focus on blockchain technology fell sharply last year (by 15 percentage points),” Šima points out.
Angel investing is usually seen as individual, but the proportion of investors who invest directly is decreasing from year to year. Last year it was 63 percent, and last year 77 percent of respondents. Most often, investors combine ways. Through the fund, 40 percent of respondents invest, and 47 percent of them have ever used a syndicate with other angel investors. “I am pleased to see more investors joining investor communities and networks like our DEPO Angels. Of the survey, this is more than half (exactly 56 percent). This approach is understandable because investing is challenging and working with other investors may be the right way to go. It is the lack of time that is one of the main obstacles for most investors. For this reason, funds and syndicates are a great way to get started,” adds Šima.
“The good news is that even in 2023, we should not expect any significant decline in the investment activity of angel investors. According to the survey, most angels are satisfied with the returns on their VC investments in the long term, and the vast majority of them have been able to at least minimally value their investment. However, I assume that given the current economic situation, investors will put much more demands on startups to have real value at the moment. They will examine their investments more carefully and look for really resilient companies that have proven business or innovation potential. Thus, angels are moving to more sophisticated fields such as fintech, AI and medtech. The number of investors is also growing significantly from year to year. All this gives an optimistic outlook for the Czech VC environment not only in 2023,” says Jaroslav Baier, counsel at the law firm HAVEL & PARTNERS.
“It is gratifying to see that most investors plan to invest as much or more in 2023 as well. In tough times, the best investment opportunities arise, so if you're ever thinking about investing, this is it now. Currently, we see more high-quality investment opportunities and the conditions for investors are better than in recent years,” says Petr Šíma, partner at DEPO Ventures.
Nearly a quarter of respondents made their first investment last year. The most common reasons why people do not invest in startups are capital intensive (42.5 percent), high risk (37.5 percent), or not knowing how to do it (32.5 percent). More than half of investors would invest in a startup if they had more information. Any help in identifying suitable startups would be appreciated by most of them (83 percent). Most often they would invest thousands of euros, but among the respondents there were those who would invest significantly more. Free capital in the Czech Republic undoubtedly is.
The quantitative research survey, which aimed to map angel investing in the Czech Republic, was conducted in the form of an online questionnaire on a sample of 140 respondents. The questionnaire was distributed to angel investors from the Czech Republic and among investors who do not invest in startups. Data collection took place during February and March 2023.
Source: E15
https://www.e15.cz/byznys/e15-a-byznys/90-procent-investoru-dokazalo-zhodnotit-investici-do-startupu-veri-umele-inteligenci-a-fintechu-1397812
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