Angel Investors put $26 Billion in 57,000 companies

The Center for Venture Research at UNH today released their annual Angel Capital report for 2007. Angels invested $26 Billion in 57,120 companies, up slightly from last year. The report says there are 258,200 active angel investors in the USA.  By comparison, Venture Capitalists invested to $29.4B in 3,813 companies in 2007.

Software accounted for the largest share of Angel investments, with 27%, followed by Healthcare Services/Medical Devices and Equipment (19%) and Biotech (12%).

Angel Investors continue to be the largest source of seed stage and early stage start-up capital, with 39% of 2007 angel investments going there.

Mergers and acquisitions represented 65% of the angel exits, and IPO's 4%, in 2007. Unfortunately, bankruptcies accounted for 27% of the exits. Overall annual returns for angel’s exits were 27.7%.

Angels tend to invest just like VCs except they do smaller investments $200K to $2M and they do about 15 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 $2M. 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.

Keiretsu Forum is the largest angel investor group in Silicon Valley. I don't have the numbers for 2007, but I know they invested $51M in 2006 in 30 companies. Several of these were real estate deals so it skews the average deal size substantially. Keiretsu Forum has invested $115M in 125 deals since its founding.

Band of Angels is another large Angel group in Silicon Valley having invested $130M in 220 companies since its founding.

Boston has around 20 Angel Capital groups. Some of the larger groups are; 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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Comments

[John Wall]

I'm always watching VCs and their groups, I didn't realize that Angels were that organized!

[Omer]

"Software accounted for the largest share of Angel investments, with 27%, followed by Healthcare Services/Medical Devices and Equipment (19%) and Biotech (12%)."

Seeing this mix change already, with biotech ascending more rapidly and Software declining. Reason being setup costs for tech startups are declining rapidly, read - Joyent, Amazon web services, Open source software....

[Paul Kedrosky]

The trouble is, as Don knows, that angels are moving up-market into being VCs, leaving fewer useful people behind doing true angel investing.

Case in point: I met with a startup today that finally gave up and created a 4-inch d/diligence folder for dealing with angels. That is absolutely absurd, a statement about the essential stupidity of most angel investors.

[Don Dodge]

Angels are definitely filling the void left by VCs who used to do most of the seed stage or first round funding. VCs have moved up to doing much bigger deals, a minimum of $5M..and larger. There are still some great early stage VCs in Boston and Silicon Valley, but not as many as before.

Angels are great for smaller deals, especially where they already know you or your business area well. If they don't know you or your business it will be just as hard, perhaps harder, than VCs to get them to invest.

Angels have the same investment thesis as VCs and do all the same due diligence and filtering. Angels are not benevolent distributors of cash...they are investors.

I think Angels are a great source of capital and personal help for startups. But the deal has to be right for all involved.

[Daniel Weinreb]

Indeed, at Common Angels we restrict ourselves to business areas that we feel that we (our members) know well. Also, we generally restrict ourselves to companies in our geographical area, so that we can keep in close touch and provide as much help as possible to the them. Yes, we do due diligence and filtering. I'm told that we are more stringent than Silicon Valley investors (I don't know from my own experience). We also sometimes syndicate with VC firms when the company needs more cash than we can provide ourselves. And we spend a lot of time helping with and participating in future rounds.

You are totally right that the deal has to be right for all involved. We have declined to fund several companies that I expect will find funding and have a great chance of success, that just did not turn out to be the right fit for us.