Entrepreneurship and investing have always been of interest to me. The Angel Investing category is particularly interesting and gets less attention than it deserves.

Please check a few of my previous articles about venture capital investing and entrepreneurship.

We usually hear about all the founders of unicorn startups and their venture capital investors, how founders managed to grow a company quickly and how their investors were essential to their growth. But many of the successful startups also had Angel Investors providing both financial and intellectual capital.

Here is a collection of a few facts and numbers about Angel Investing.

The questions I try to answer are:

1. At what development stage most Angel Investments happen?

2. How big is Angel Investing compared to Early Stage VC and Late Stage VC?

3. How is deal count and funding distributed by sector?

4. Why would one become an Angel Investors?

5. Why would entrepreneurs seek Angel Investors?

1. At what development stage most Angel Investments happen?

Angels are usually the second investors after the founder and their friends, which is a significant milestone to early stage venture capital and continuation of product design and product development.

Source: Angel Capital Association 2014

2. How big is Angel Investing compared to Early Stage VC and Late Stage VC?

One thing we need to remember is that 2014 and 2015 numbers were forged by mega-rounds and new unicorns. 2016 numbers are considered a return to normality and more manageable levels of investment pace. Interestingly, Angel plus Seed deal count has been consistently the majority of deals since 2011. Further solidifying the importance of Angels as a component of growth for startups.

Here is a graph showing Angel and Seed investments only.

2016 saw more than $6.6 billion invested across approximately 4,115 angel/seed funding rounds, 2,500 financings were in the Angel category. On deal size and valuations, the median angel deal size was $600,000 in 2016 (an increase from 2015), while median valuation was $5.4 million (a drop from 2015).

3. How is deal count and funding distributed by sector?

The graphs below show the distribution of deals and funding by sector as a sum of Angel, Seed, Early Stage VC and Late Stage VC.

4. Why would one become an Angel Investors?

The list is quite extensive. And of course, varies according to each investor. But here are the four top reasons people become Angel Investors:

– Fun: it may be surprising, but fun is a significant component of angel investing. Angel investors like to study a market a sector and enjoy working with entrepreneurs. Hence, fun is one of the primary drivers for angel investors.

– Knowledge: talking with entrepreneurs and other investors about a new product or technology expands the investor’s knowledge about that market and keeps them updated with the newest trends.

– Network: most angel investors belong one or more angel networks. Where they share deals, work with other investors to conduct due diligence and share their expertise. I, for instance, belong to the Wharton Alumni Angels of Silicon Valley.

– Returns: finally, investors care about financial returns as well. Generally, angel investors seek 3x to 5x return on the money they invest, but they are aware that some investments will break even or will completely vanish.

5. Why would entrepreneurs seek Angel Investors?

A recent paper by Josh Lerner of the Harvard Business School and Antoinette Schoar of the MIT Sloan School of Management explores the rise of angel investing (remember the data above?) and compares it to venture capital. Using data from two large angel startup groups, the authors demonstrated results that should encourage investors and entrepreneurs to pay attention to Angel Investing.

Find out more about it here.

Some of the key findings are:

– First, the authors find that during the period of study, “angels outperformed the venture capital industry overall.”

– Second, “Startups funded by angel investors are 14% to 23% more likely to survive for the next 1.5 to 3 years and grow their employment by 40% relative to non-angel funded startups. Angel funding affects the subsequent likelihood of a successful exit, raising it by 10% to 17%.”

– Third, Lerner and Schoar explain the positive outcomes of angel investors by arguing that they provide “value added and hands-on improvement … rather than just access to funds.” Often angel investors are “some of the most sophisticated and active investors in each region, which might result in superior decision-making.”

All of this indicates that receiving capital from Angel Investors is a real validation and can positively impact the future of a startup. Also, many Angel Investors are members of angel groups and leverage their networks to help the startups they invest.

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