Job Creation by Angel Backed Companies Collapsed in 2011

That should have been the headline of the recent report on the angel capital market put out by the Center for Venture Research (CVR) at the University of New Hampshire. The CVR tells us that angel investments created 165,600 new jobs in 2011; but last year it said that angel investments produced 370,000 new jobs in 2010. Taken together, the CVR’s figures show that job creation by angel-backed companies dropped a whopping 55 percent between 2010 and 2011.

The change in the number of jobs created per investment is similar. The CVR’s data show that the average number of jobs at angel-backed companies fell 58 percent (from 6 to 2.5) between 2010 and 2011.

But instead of mentioning this huge job in angel job creation, the report simply says “Angel investments continue to be a significant contributor to job growth with the creation of 165,600 new jobs in the United States in 2011, or 2.5 jobs per angel investment.”

To me that’s a big omission. We can debate whether the creation of 165,000 plus jobs is really “significant” in an economy that the Bureau of Labor Statistics (BLS) reports created just shy of 27 million private-sector jobs in the 12 months ending in June 2011. But, if you think that the creation of 165,000 new jobs is “significant,” then you should think that a 204,400 job drop is “significant” too.

If we believe the CVR’s numbers, then we need to figure out what happened. A drop of this magnitude in angel job creation shouldn’t be ignored.

Are the numbers correct? The authors of the report — who know the data better than anyone else — expressed no reservations about the 2010 job creation figures. In last year’s report, they wrote, “Angel investments continue to be a significant contributor to job growth with the creation of 370,000 new jobs in the United States in 2010, or 6 jobs per angel investment.” If last year’s figures were erroneous, surely they would have noticed and said something (or at least included a disclaimer in their report.)

Second, both government agencies and academics have (implicitly) expressed confidence in the CVR’s figures. For instance, the National Science Foundation reproduced some of the CVR’s numbers in its 2010 Science and Engineering Indicators, a widely used government report.

Moreover, in a recent blog post on, Professor Patti Greene of Babson College discussed the 2011 CVR report without out expressing any concern about the accuracy of the figures. (Please note that I am not criticizing Dr. Greene here; I, too, have used the CVR’s numbers uncritically.)

On the other hand, something seems wrong with the CVR’s numbers. The 2010 job creation figure was 48 percent higher than the 2009 figure. And the 2010 estimate of the number of jobs created at the average angel-backed company was 37 percent larger than the previous year’s figure. Unfortunately, the CVR doesn’t provide enough information about its methodology for others to figure out if their analyses contain any errors or biases. All we can do is to rely on the folks at CVR to tell us if there’s a problem, and they didn’t.

This poses a dilemma. The 2011 report says that the dollar value of angel investment increased 12.1 percent between 2010 and 2011; the number of ventures receiving angel funding went up 7.3 percent; and the number of angels investing increased 20 percent. Therefore, if we believe the CVR’s analysis, we need to conclude that the angel market is improving, but job creation at angel backed companies is plummeting. However, if we think something is wrong with the CVR’s numbers, then we have to conclude that the report tells us nothing about what’s going with the angel capital market.

Which alternative do you think is correct?

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.