Software Startups – Made for Angels

April 26 2010 No Commented

Software Startups – Made for Angels

Over the past couple of decades, angels have consistently chosen to invest in software deals, more frequently than ventures in other sectors.  Software companies generally scale quickly and produce high gross margins.  When coupled with a great management team and a significant head start, software companies can produce wonderful returns for entrepreneurs and investors alike.

Market trends are making software ventures even more attractive to angels.

  • Software development costs are way down, requiring less investment for developing and maintaining products.
  • Software companies can often achieve significant market traction with $1 million or less in invested capital – the sweet spot for angel-only deals (see Just What Are Angel-only Deals?)
  • Software company exit valuations have also come down but are still interesting to angels.  The current bell curve for M&A activity in the US peaks at about $35 to $40 million in valuation.  It is my understanding that these exits values are also typical for software companies.
  • Trends towards computing in the cloud have only renewed our interest, as angels, in software startups.

It’s a GREAT time to be an angel.  Find a group and jump in!

Bill Payne is the 2010 BNZ University of Auckland Business School Entrepreneur In Residence.