Angel Capital Association Summit - Angels invest $26B in 2006

The Angel Capital Association is holding its annual meeting in Chicago this week with over 330 angel investors from around the country (USA) representing more than 250 angel groups. Angel investing is big. In fact, angels have invested more dollars in more startups than VCs over the past 4 years.

Angels invest just like VCs except they do smaller investments $200K to $2M and they do about 10 times as many deals. However, Angels have the same investment criteria and expectations of significant returns. The "average" angel group makes 8 investments per year for a total of about $1.8M. The average deal size (seed stage) is about $250K.

The larger angel groups in Silicon Valley and Boston do significantly more deals and invest between $350K and $600K per round, and maybe $1.5M to $2M per company.

James Geshwiler, Managing Director of Common Angels in Boston, provided this profile of the Common Angels;

• Currently 66 Members and 130 investors in the CA network
• Most members are founders, CEOs of tech companies
• Common Angels members currently serve on more than 80 Public, Private boards (ie., large market reach)
• Members are expected to invest $50K-100K/year in at least two companies, make at least 1/2 the meetings, participate in diligence & sit on boards
• $10M Co-investment Funds + $30M in capital from our members ='s $40M investment plan over next 4-5 years.
• Investment strategy: target the "capital gap" and back new areas of technology
• Typically invest $8-10M/year in 4-6 new companies & as many follow-ons
• Invest $500K-$1M in the first round; 2-3x over life of company
• Seek $2M-3M Series A typically & <$20M over life of company
• Funded 33 companies; with >$37M from CA + >$100M from co-investors (ie., when we invest, it's very likely to have VC $ at the same time or after)
• We lead 3/4th of our investments.Those investments have generated >$200M in liquidity.

Average returns in Angel Capital are similar to average returns in Venture Capital. Meaning, the top quartile of angels or VCs do very well, the second quartile does OK, and the bottom half lose money. Angels and VCs understand this is a high risk game.

The Angel Capital Association did a survey of its members and got data on 590 deals that achieved an "exit".

• 47% lost money
• 26% returned 1X to 4X multiples
• 15% returned 4 to 6 times their investment
• 8% returned 6 to 30 times
• 4% returned 30X or more

Luis Villalobos of TechCoast Angels has been angel investing for 10 years. Their returns were better than average. Luis said the average for 10 deals is;

• 30% are a total loss
• 20% - will lose about 50% of your investment
• 30% - get a 3X return
• 10% - return 10X
• 10% return 30X plus
• Overall average expected return is 4.8 times investment.

I suspect that VC portfolio investments follow a similar pattern. One big winner can cover lots of losers. Angels do 10 times as many deals as VCs, but on average the success rate is about the same.

Other interesting factoids from the Angel survey;

• 40% of investments are seed stage = pre-product and pre-revenue
• 40% of deals are "start-up stage" = revenues of less than $150K
• Fail fast - Failed investments were held for 2 years before dying
• Exits normally happen within 5 years

Jean Hammond from Hub Angels presented some interesting data on IPOs in 2006.

• Average market cap $165M
• Amount raised $42M
• Last Quarter revenues Annualized $46M
• Price to Sales multiple - 2.7X
• 56% of Nasdaq companies have a market cap of less than $300M

The Toronto Stock Exchange did a presentation on listing profiles and alternative financing vehicles. The TSX is very innovative and is making a huge market in small IPOs. They have something called the TSX Venture Exchange for small start-ups to gain some liquidity. The TSX profile;

• 270 IPOs last year
• $3M is the average amount raised
• $26M is the average market cap after one year
• Average revenues are $5M with a forecast to $9M, and then $13M
• Many of the Venture Exchange companies graduate to the TSX
• Average TSX market Cap is $143M

Boston has around 20 Angel Capital groups. Some of those in attendance included; Beacon Angels, Boston Harbor Angels, Common Angels, eCoast Angels, Hub Angels, and Launchpad. See the Angel Capital Association site for leads to angel groups in other parts of the country.

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