September 30, 2014

Chart: What’s Happening with Angel Investing

Last year, the dollar value of angel investments increased 11.7 percent from a recent low of $18 billion (measured in 2010 dollars) the year before, according to analysis by University of New Hampshire’s Center for Venture Research (CVR). While this increase marks the first rise in angel dollars invested in real dollar terms since 2006, the amount put into companies in 2010 remains below that in every year from 2003 through 2007. In 2010, the amount invested by angels was only 5.6 percent higher in real dollar terms than that supplied in 2002.

Angel Investment TrendsClick for larger chart (in new window)

The trends are very different for the number of companies financed by business angels. Despite a slight dip between 2007 and 2008, the CVR reports a consistent increase in the number of angel-backed companies. Between 2002 and 2010, the number of companies financed by business angels rose 71.9 percent, according to the University of New Hampshire research group.

The result of these divergent trends is a steep drop in the size of the average angel investment from $528,000 in 2002 to $325,000 in 2010 (in real dollars).

Why angels dropped the average size of their investments 38 percent in real dollar terms between 2002 and 2010 remains an important unanswered question. Any thoughts?

Source: Created from data from the Center for Venture Research.

3 Comments ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

3 Reactions

  1. Shane, thanks for this post, very interesting data, and yes, I do have some thoughts, apropos of your final sentence in the post.

    The decline in average amount per deal may be as simple as a reflection of the changing nature of technology and technology startups, as new technology has lowered the amount of money it takes to go from idea to credibility these days. I think a lot of people would agree with me that what used to take a high profiel software or web venture $2-3 million 10-15 years ago now takes more like $200-$300K. That’s particularly true of software and web apps and the like, not for say biotechnology or green energy; but it may affect the overall averages.

    Tim

  2. VC firms make their money by betting on multiple companies and then recouping their money on the small percentage of deals that “hit it big”. With the recession reducing the number of equity events, it would makes sense that VCs have less capital to sink into additional bets.

  3. Shane,
    I agree with Tim. The cost of technology in computers and many life sciences has come down at least 10 fold, and so has the cost of developing a product in those fields. I don’t know what percentage of companies that fit your definition of “angel backed ventures” are in those categories but if it’s significant that could explain the drop.

    Thanks again for an insightful post.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>



Compare your business to the industry - Try our new tool