3 Top Trends in Angel Investing
1. Industry as a whole: Despite a global recession the average amount that Angel groups invested in startups in 2008 was nearly identical to the level in 2006 (however 2008 witnessed an 8% drop from 2007). Meanwhile average dollars invested per funding round grew by 14% over the same period. Overall, 2008 US Angel investment represented an estimated $19 billion in 55,000 deals.[i]
Bottom line – Total Angel investment was flat between 2006 – 2008, but the average funding round grew by 14%. Angels began doing fewer, larger deals.
2. Areas of investment: Top areas of Angel investment in 2008 were (1) software, (2) medical devices and equipment, and (3) business products and services. When asked about future areas of investment in 2009, biotechnology replaced “business products and services” as number (3). The lowest areas of investment were retail and distribution, semiconductors and financial services.[ii]
Bottom line – Angels groups have been favoring software and medical device/biotech startups. Some industries have been disproportionally avoided.
3. Angel dollar amounts: The gross majority of Angel group funding rounds in 2007 were for either less than $150,000 (USD), or between $250,000 – $500,000. Less than 5% of all Angel group investments exceeded $750,000.[iii]
Bottom line – Angel groups disproportionally favor certain deal sizes, with a 2008 average around $275,000. It is very rare for Angel groups to fund rounds larger than $750K.
[i] Angel Capital Education Foundation, 2008 ACA Angel Group Confidence Survey, (2008); see also Angel Capital Association, FAQ: The Value of Angel Investors and Angel Groups, http://www.angelcapitalassociation.org/data/Documents/Public%20Policy/Federal%20/Value%20of%20Angels%20FAQ%202009R.pdf (Accessed June 1, 2010); see also Angel Capital Education Foundation, ACA Angel Group Confidence Surveys 2007, 2008 and 2008, (2009).
[ii] Angel Capital Education Foundation, 2008 ACA Angel Group Confidence Survey, (2008).
[iii] Angel Capital Association, 2009 ACA Angel Group Confidence Survey and 2008 Member Directory, (2009).
If angels are looking for fewer, larger deals, what hope is there for the rest of us small startups needing seed capital?!? VCs and angels keep wanting more and more mature companies to invest in. This is alarming for a generation of startups!
Angel investors are the largest source of funding for small startups and an extremely important part of the US economy that very little is known about. Thanks for shedding some light!
Angels are doing a lot of deals now, at least since Q1 of this year. Our angel group has done more than 20 deals so far in 2010, although I’m not sure if we’re unique or if this is part of a larger trend. It felt like more risk to do deals last year since the economy was so topsy but we’re all hoping the exit market will keep encouraging. If it does, there are a lot of good deals that have been waiting to be done. May was a bad time but we hope June will improve.
Angels are still the primary source of external capital for startups (other than friends and family). Loans are too much of a burden and too hard to get. They still do lots of small fundings. The investments by angels is probably somewhat different from the statistics on angel groups. Good frame of reference though.
Thanks for this post, very informative for my company as we start to look for angel funding. Not that encouraging, but highly useful anyway. I echo Mr. Larkin’s comments above!