October 21, 2014

Angel Investments Update Since the Economic Downturn

angel investments update

Last year, I wrote a post that used data from the Center for Venture Research (CVR) at the University of New Hampshire to explore how angel investments have changed since the financial crisis and Great Recession.

Now that the CVR has released its 2013 estimates of angel investing activity in the United States, I am updating that analysis. The twitter length message is this: The number of angels and angel-backed companies has risen, but investment dollars have fallen, driving down the size of the average investment.

More Americans made angel investments last year than in 2007. The CVR estimates that the number of angels increased by 16 percent between 2007 and 2013. That’s considerably faster than the 5 percent increase in the population that the U.S. Census Bureau reports.

The value of angel investment has fallen in inflation-adjusted terms. In 2007, angels put $27.3 billion (in 2010 dollars) into young companies. In 2013, they invested $23.2 billion. The decline occurred primarily during the economic downturn. The amount of investment dropped from $27.3 billion to $18 billion (in 2010 dollars) between 2007 and 2009. Since 2009, it has risen slowly.

The number of angel-backed ventures has increased. CVR data indicate that the number of companies receiving money from business angels rose from 57,120 in 2007 to 70,730 in 2013, a 24 percent increase. That rise is significant, given that most estimates show that the number of startup companies stagnated or declined over the same period.

The size of the average angel investment has shrunk. The CVR figures show that the average investment was $477,000 (in 2010 dollars) in 2007. In 2013, it was $328,000, nearly one-third less than it was in the last year before the Great Recession.

Changes in angels’ preferences for stage of investment and industry may account for some of the decline in the size of the average investment. In 2007, 39 percent of the angel investments were at the seed and startup stage. In 2013 that figure was 45 percent.

The industry distribution of funded companies also changed between 2007 and 2013. Media deals increased from 5 percent of the total in 2007 to 16 percent in 2013. Industrial and energy deals went from 8 percent of the total to zero, while financial services deals rose from zero to 7 percent.

Another big change between 2007 and 2013 was a rise in the yield rate – the percentage of pitched opportunities that result in actual investments. At 14 percent in 2007, the figure reached 22 percent in 2013. The rise in the yield might be a cause or an effect of the decline in the average deal size. Investors might like more deals than they used to, leading them to spread their money around more businesses. Alternatively, investors might be making smaller investments allowing more of the deals they see to pass muster.

The CVR does not provide pre-recession data on valuation. But in 2013, the average deal was valued at $2.8 million, with angels taking an average of 1/8 of the companies’ shares in return for their money.

The 2013 data doesn’t significantly change the post-Great Recession patterns in angel investments shown in the CVR data. The number of angels and angel-backed companies has risen, but amount of money invested has declined. The primary change is a significantly smaller average investment in 2013 than in 2007.

Angel Photo via Shutterstock

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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.

5 Reactions

  1. It’s good to see that more angels are out there and more businesses are getting angel investments. Hopefully that can act as the catalyst that gets us to bigger deals down the road.

  2. This is good news for us businesses. While angel investments are most likely to bless bigger companies, it is still favorable to small businesses as long as it helps the economy, the employment system and the overall purchasing power of the population.

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