UNDERSTAND | March 12, 2018

New Research on Individual Angels Provides Insights for Startup Ecosystem

Photo Credit: The American Angel

Angel investors are the secret weapon of entrepreneurial growth in the United States and many other countries. The G20 recognized how important they are in 2017, incorporating policies to grow early-stage capital for high-growth startups into their agenda. In the U.S., angels invest about $25 billion in 70,000 companies every year. Without angels, most great startups wouldn’t start – but so little is known about who angel investors are as individuals and how and why they invest.

This is why the Angel Capital Association supported “The American Angel” study, with Wharton Entrepreneurship and Harvard Business School. Data and insights help investors, entrepreneurs, and startup ecosystem players be more effective. For example, one of the main takeaways from the study is that 63 percent of U.S. angels are based outside of Silicon Valley, New York and Boston – meaning that entrepreneurs may have more success in raising capital close to home rather than traveling to those world-famous investing hubs. Therefore, policymakers should focus on ensuring healthy environments for startups to connect with local smart investors.

The American Angel tells us some overall stats about angels, with median investment size of $25,000 per deal per angel and the typical angel has a portfolio of 11 companies. But for my money, the report’s best value comes from more complex analysis:

  • Entrepreneurs become angels: More than half of angels (54.8 percent) have experience as entrepreneurs and often advise the startups they invest in, informally or as board members. Angel investors with entrepreneurial experience write bigger checks, with an average of $39,000 vs. $28,000 for angels without entrepreneurial experience. They also have more companies in their angel portfolios and see better returns.
     
  • More women are becoming angels: Women comprise 22 percent of angel investors in the study – and that number is growing. Among respondents who began investing since 2015, 30 percent are women. In comparison, studies have shown 5 to 8 percent of U.S venture capitalists are women.
     
  • Women invest differently than men: 51 percent of women respondents consider gender of business founders to be important when making investment decisions (compared to 6 percent of men). “This indicates that women are seeking to support women entrepreneurs,” says lead researcher Laura Huang. Another gender difference: twice as many women as men reported they strongly consider social impact of a startup when making investment decisions (33 percent for women vs. 16 percent for men.) Both men and women angels agree that the quality of the founding team is the most important consideration when investing.
     
  • Eyes-open risk takers: Angels said an average of 11 percent of their portfolio yielded a positive return. “That number is consistent with other studies that have shown 5 to 10 percent of angel investments yield a positive return for angels,” says Huang. “A deeper dive shows that where startups have been sold or gone public, 39 percent yielded positive returns for the angel investor.”

ACA plans to continue “The American Angel” in future years, learning more as we go. We hope this data provides insights to business angels in other countries, especially if we all find ways to compare data.

Thanks to our colleagues in the UK and Spain for their earlier research projects on this topic. They were an inspiration for ACA.

Ms. Hudson leads the Angel Capital Association (ACA), the world’s leading professional and trade
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