Angel Investing in 2013 Approaches Record High; 298,800 Individuals Invested $24.8 Billion Says UNH Study

Market Size.  The angel investor market in 2013 continued the upward trend started in 2010 in both investment dollars and in number of investments. 

Total investment in 2013 was $24.8 billion, an increase of 8.3% over 2012, according to the Center for Venture Research at the University of New Hampshire.  A total of 70,730 entrepreneurial ventures received angel funding in 2013, an increase of 5.5% over 2012 investments.  The number of active investors in 2013 was 298,800 individuals, an increase of 11.4% from 2012. 

The increase in both total dollars and the number of investments resulted in a deal size for 2013 that was slightly higher than in 2012 (an increase in deal size of 2.6% from 2012).  These data indicate that angels were active investors in 2013 but those that did invest decreased their individual investments from $85,435 in 2012 to $83,050 in 2013, a decrease of 2.8%.  The $24.8 billion in total investments is close to the market high of $26.0 billion that occurred in 2007.

Job Growth. Angel investments were a significant contributor to job growth with the creation of 290,020 new jobs in the United States in 2013, or 4.1 jobs per angel investment.

Sector Analysis. Software remained in the top sector position with 23% of total angel investments in 2013, followed by Media (16%), Healthcare Services/Medical Devices and Equipment (14%), Biotech (11%), Retail (7%) and Financial Services/Business Products and Services (7%).  The jump in Media investments from 6^th place in 2012 to 2^nd in 2013 reflects the growing investor interest in social media and applications.

Stage. Angels increased their investments in the seed and start-up stage, with 45% of 2013 angel investments in the seed and start-up stage, up from 35% in 2012.  The biggest factor in this increase was in the seed stage with 21% of angel investments in 2013, up from 9% in 2012.  Angels also exhibited an increased interest in early stage investing with 41% of investments in the early stage, up from 33% in 2012.  Expansion financing exhibited a significant decrease to 12% of deals in 2013, down from 29% in 2012.  Investment activity was evenly divided between new, first sequence investments and follow-on investments, unchanged from 2012.  This increase in seed/start-up stage is an encouraging sign since seed capital is the stage of need for our nation’s entrepreneurs.

Valuation.  The average angel deal size in 2013 was $350,830, an increase of 2.6% from 2012, and the average equity received was 12.5% with a deal valuation of $2.8 million.

Yield Rates. The yield rate is defined as the percentage of investment opportunities that are brought to the attention of investors that result in an investment.  In 2013 the yield rate was 21.6%, virtually identical to 2012 (21.3%).  While a high yield rate is an encouraging development for entrepreneurs seeking angel capital there is a question of the sustainability of this rate and it is possible that the yield rate will retreat to the historical average of 15%.

Women and Minority Entrepreneurs and Investors. In 2013, women angels represented 19.4% of the angel market, similar to 2012 (21.8%).  Women-owned ventures accounted for 23% of the entrepreneurs that were seeking angel capital and 19% of these women entrepreneurs received angel investment in 2013.  It is interesting to note that fewer women entrepreneurs were seeking angel capital in 2012 (16%) but more of those women received angel capital in 2012 (25%).  This high yield rate for women entrepreneurs in 2012 may have attracted more women entrepreneurs to the market and account for the increase in the percentage of women seeking angel capital in 2013. 

Minority angels accounted for 4% of the angel population and minority-owned firms represented 7% of the entrepreneurs that presented their business concept to angels, figures comparable to 2012.  The yield rate for these minority-owned firms was 13%, which is below the market yield rate in 2013.  Thus, the goal would be to both increase the percentage of minority entrepreneurs seeking angel capital and increase the quality.

                                    ------------------------------

The Center for Venture Research (CVR) has been conducting research on the angel market since 1980.  The CVR’s mission is to provide an understanding of the angel market through quality research. The CVR is dedicated to providing reliable and timely information on the angel market to entrepreneurs, private investors and public policymakers.

The Center for Venture Research would like to thank all the angel groups and individual angels that participate in our research efforts.  The response rate for this survey was 29%.  The Center for VentureResearch also provides seminars to angels and entrepreneurs, and research reports on aspects of the angel market are also available.

The full citation for this report is: Jeffrey Sohl, “The Angel Investor Market in 2013:  A Return to Seed Investing”, Center for Venture Research, April 30, 2014.

Subscribe to the Angel Investing News

UNH Report Released: THE ANGEL INVESTOR MARKET IN 2012: A MODERATING RECOVERY CONTINUES

“The angel investor market in 2012 continued the upward trend started in 2010 in investment dollars and in the number of investments, albeit at a moderate pace. Total investments in 2012 were $22.9 billion, an increase of 1.8% over 2011,” according to the Center for Venture Research at the University of New Hampshire.  “A total of 67,030 entrepreneurial ventures received angel funding in 2012, an increase of 1.2% over 2011 investments. The number of active investors in 2012 was 268,160 individuals, a reduction of 15.8% from 2011. The small increase in both total dollars and the number of investments resulted in a deal size for 2012 that was virtually unchanged from 2011 (an increase in deal size of 0.6% from 2011). These data indicate that while fewer angels were active investors in 2012 those that did invest have increased their individual investments substantially, from $70,690 in 2011 to $85,435 in 2012, an increase of 20.9%. It is possible that given the robust returns in the public equity markets, some angels may have reallocated their portfolios and reduced their angel investing activity but those angels that continued to invest remained quite active.”

The official title of this report is: Jeffrey Sohl, “The Angel Investor Market in 2012: A Moderating Recovery Continues”, Center for Venture Research, April 25, 2013, available HERE. The Center for Venture Research (CVR) has been conducting research on the angel market since 1980 and coined the term “angels” to refer to early stage business investors. The CVR’s mission is to provide an understanding of the angel market through quality research. The CVR is dedicated to providing reliable and timely information on the angel market to entrepreneurs, private investors and public policymakers.

Other findings for 2012

Software remained the top sector for investing with 23% of total angel investments in 2012, followed by Healthcare Services/Medical Devices and Equipment (14%), Retail (12%), Biotech (11%), Industrial/Energy (7%) and Media (7%). Industrial/Energy investing has remained a significant sector for angels for the last few years, reflecting a continued appetite for clean tech.

Angel investments were a significant contributor to job growth with the creation of 274,800 new jobs in the United States in 2012, or 4.1 jobs per angel investment.

The average angel deal size in 2012 was $341,800 and the average equity received was 12.7%, resulting in a deal valuation of $2.7 million.

Angels decreased their investments in seed and start-up capital, with 35% of 2012 angel investments in the seed and start-up stage, down from 42% in 2011 and matching seed and startup investing in 2010 (31%). Expansion financing exhibited a significant increase to 29% of deals, up from 15% in 2011. Investment activity was evenly divided between new, first sequence, investments and follow-on investments, the same as in 2011. This decrease in seed/start-up stage is of concern since that is the stage of need for our nation’s entrepreneurs.

In 2012 women angels represented 21.8% of the angel market, a significant increase from 2011 (12.2%). Women-owned ventures accounted for 16% of the entrepreneurs that were seeking angel capital and 25% of these women entrepreneurs received angel investment in 2012. While the number of women seeking angel capital is low, the percentage that received angel investments (25%) is above the market yield rate and these data indicate that when women do seek angel capital they lead the market yield rate by 4%.

Subscribe to the Angel Investing News

Jeffrey Sohl, director of the UNH Center for Venture Research

Stocks fly while VC funds crawl; KPCB on double secret probation

The Dow Jones Average closed at its highest point in history yesterday.  So how do public stocks now compare with VC returns?  Our analysis lags a bit in time.  DJIA heights hit the TV news right away, while the only reliable source of broad-scale VC returns comes though the National Venture Capital Association (NVCA) and takes a while to collect.  That said, here are most recent short term and long term returns for the venture capital business over the past ten years compared to the public equity markets in the US.

We suspect that if the chart above were updated in real time it would be a bad day for the VCs and perhaps for the Angels too.

 

For over a decade we have been using charts similar to that above when we lecture in Jeff Sohl’s private equity class at UNH.  Reliably, for most of that time, the best returns have been realized in early stage funds. I then argue, by reference, that this “sweet spot” is the best place for angels to concentrate. Woe is me! Based on this chart, the sweet spots might well be an index fund and a home on the beach.

How the mighty are falling.

The conventional wisdom in the industry says that even though average VC returns are down, the large and famous funds, the flagships of the industry, continue to do well.  The evidence lies in the fact that certain firms have been very successful in raising new funds.  For example, Spark Capital in Boston, a venture capital investor in Twitter, Foursquare and Tumblr, announced last month that is has raised $450 million in its largest fund to date.

Yet to our surprise, the world’s best known fund, Kleiner Perkins, may be feeling the strain.  Dean Wormer of Faber College having retired, they appear to have voluntarily placed themselves on double secret probation.

Reuters reports today that blue-chip venture-capital firm Kleiner Perkins Caufield & Byers expressed frustration with poor fund performance and promised to do better at gatherings for investors last month, according to people familiar with the discussions.

“The firm, which has lost some of its shine recently due in part to hefty bets on green energy technology and a lack of home-run Internet investments, said it would be more careful with capital and redouble its efforts to boost performance. Several investors who received invitations to the meetings said it was unusual for Kleiner Perkins to hold such gatherings when it was not raising new funds,” write Sarah McBride & Mark Boslet.

“They’re just frustrated and upset that the performance hasn’t been as good as they think it should be, and they are candid about it,” said one investor, or limited partner, who attended one of the meetings and requested anonymity.

Why do we call this double secret probation?  Because KPCB won’t identify which of their funds they are talking about or what their returns (IRR) actually are. A spokeswoman for Kleiner Perkins said: “Communications between Kleiner Perkins and its limited partners are private and confidential. As such, we do not comment on them.”

Luckily, Dan Primack of Term Sheet does comment. “So I reached out to some of the firm’s investors, who tell me that Kleiner Perkins chose to significantly reduce holding values on numerous portfolio companies for Q4, which was a change from relatively static holding values used during the prior quarters. So these meetings were to preempt LPs from being surprised when the year-end report arrived.” 

“Finally, one LP also is sure to point out that performance ‘weakness’ is relative. ‘Current KP funds are performing pretty well, not rock star but upper quartile.’”

Regular readers of our e-pistles know that VC and angel returns are a topic we follow closely. You can find more detail on this chart in the NVCA press release, located here. You can find more about Angel investment performance vs. VCs here and here. Term Sheet is here.

Apparently, Tom Perkins of KPCB no longer owns this yacht, "The Maltese Falcon."