Angel investors invested $23.1B in 49,500 companies in 2005, according to the annual report from The Center for Venture Research at the University of New Hampshire. This compares to traditional VC investment of $21.7B invested in 2,939 deals according to MoneyTree Report published by Price Waterhouse Coopers (PWC). This marks the third year in a row that Angels have invested more than traditional VCs.
Angels invest, on average, smaller amounts ($467K) vs. ($7.5M) but invest in far more companies; 49,500 versus 2,939. Angels are the principal investors in early stage seed round investments.
Angel investments by sector track pretty closely with VC investments. Angel investments by sector were Healthcare /Medical devices 20%, Software 18%, Bio-tech 12%, Electronics/Hardware 8%. Media, Industrial/Energy, and IT each garnered 6%. The remaining 24% was spread among many sectors.
VC investments by category were; Software 22%, Biotech 18%, Telecom 10%, Medical devices 10%, Semiconductors 8%, Networking SW/HW 6%, Media 4%, and IT 4%. Everything else was tiny.
This data tracks my personal experience in working with VCs and Angels. VCs have very large funds with a small number of partners so they need to make larger investments in fewer companies. The time and resource commitments versus capital invested do not work for VCs to make seed stage investments. See my earlier post on The economics of the VC business.
Angels tend to make seed stage investments of $200K to $1M. The sweet spot seems to be $250K to $500K. The Angels business model often is to help get the initial team together, a product prototype built, and win some early beta sites or customers, then take the deal to VCs for major first round investment. Angels tend to be retired serial entrepreneurs, often with direct experience in the market sector they invest in.