How Many Angels Make An Entrepreneur? Patti Greene Answers In Forbes Blog
How many angels?
Ecosystem. Ecosystem. Ecosystem. I admit I am obsessed with the idea of the ultimate entrepreneurship ecosystem. What does it really take in an environment to stimulate and nurture people in starting and growing businesses? We know a lot about the what and who; It’s the how that gets tricky. And that’s part of why How many angels is such an important question.
When we do think about the what and who, providers of capital are generally front of mind. The good news is that the latest numbers on angel investments are just out. (I’d say hot off the presses but recognize that as an increasingly dated term.) A few months ago Scott Shane reported on the slowing rate of activity for angels between 2007 and 2009. This week Jeff Sohl, Director of the UNH Center for Venture Research (link) released their latest angel study, The Angel Investor Market in 2011: The Recovery Continues. Here are my top ten takeaways from the report – including some of the changes since 2010.
1) Total investments in 2011 were $22.5 billion, an increase of 12.1%
2) 66,230 ventures received funding, an increase of 7.3%
3) Number of active investors in 2011 was 318,380 individuals, an increase of 20%
4) Deal size went up 4.7%
5) Some diversity in industry investments (Software 23%, Healthcare services/medical devices and equipment 19%, industrial/energy 13%, biotech 13%, IT services 7% and media 5%)
6) Mergers & acquisitions represented 54% of angel exits
7) Bankruptcies represented 24% of the exits
8) Seed and start-up stages represented 42% of the investments, an increase of 31%
9) Early (post-seed/start-up) and expansion stage represented 55%, a decrease of 12%
10) Contribution to job growth – 2.5 jobs per angel investment
What do these numbers mean for the ideal ecosystem? First, I agree with Jeff that we should be heartened by the increase in seed and start-up investments. Overall our entrepreneurial resource providers all tend to want to continually move up the food chain. You can’t have an upper end of a food chain if you don’t tend to the base.
Second, I’m also pleased to see some diversity of industries. The healthy ecosystem can be built around clusters, but actually needs the diversity of flora (the businesses) and fauna (the entrepreneurs) to stay healthy over the long-term.
Third, it’s intriguing to think about the exits. With slightly more than half profitable and then another quarter in bankruptcy, that sounds like it leaves about that final quarter as a better deal for the acquirer than the acquired.
And fourth and final, the number of 318,380 investors just doesn’t sound like very many angels to me. It’s likely this survey hears from the more formal and active angel networks. Counting the rest of them is difficult because they come in many varieties and they act in many different ways. However, when building those ecosystems, training angels is a critical part of building the system.
All in all, it’s good to see the numbers. For a good dive into the rest of them, you can read all of the Center’s past reports in their archives. Now in full disclosure, Jeff Sohl once beat me in golf, but no money exchanged hands in the process.