Angel Group Deal Flow Statistics

February 22 2010 2 Commented

Angel Group Deal Flow Statistics

To provide members with a broad selection of opportunities to invest in quality start-up ventures, angel groups encourage and are prepared to manage rather high deal flow.  Here are typical deal flow statistics for angel groups:

Most groups encourage entrepreneurs to submit an executive summary or application via the group’s website, often AngelSoft (www.angelsoft.net).  A small group of angel members and/or staff then pre-screen these applicants to determine that the business meets the investment criteria of the group and is within the business sectors of interests to the group.  Generally, only about 20% of applicants survive this examination.  While this pre-screening process may take 2 to 8 weeks, depending on the activity of the group, most organizations try to provide feedback to applicant entrepreneurs quickly.

These 20% of applicants are then screened in greater depth by meeting with a larger group of members and/or staff.  Positive interest by the group is often defined at this stage by members, sufficiently interested in the deal and skilled in the business sector, agreeing to participate in the due diligence on the company.  If a due diligence team cannot be assembled, interest in the deal is declined.  It is common that groups initiate due diligence activity on one in three of screened company (perhaps 8-10% of the original applicants). 

Once due diligence is initiated, the process normally requires 6 to 8 weeks to conclude.  Success is defined by one or more members of the due diligence team committing to writing investment checks for the company.  Of those applicant companies that begin the due diligence process, one in three receive at least one check from those on the due diligence team.

When the company has completed due diligence, angel groups often schedule investment meetings at which the due diligence team reports to the membership and the entrepreneur repeats his/her presentation to the group.  Of these companies, about half receive significant investment (a lead investor emerges and multiple members agree to invest $25,000 or more) from the angel group.
 
To recap:

  • 1 in 5 companies who apply are moved to screening
  • 1 in 3 of these successful applicants enter the due diligence phase
  • 1 in 3 successfully emerge from due diligence with at least one committed investor, and
  • 1 in 2 of these companies receives substantial investment from the group.

 

In short, 1-2% of companies receive substantial investment from angel groups to which they apply for funding.  Agreed…it is a grueling, high-risk process for entrepreneurs.  Yet, only a small fraction of investments made using this process provide significant return on investment to angels.

It’s a GREAT time to be an angel.  Find a group and jump in!

Bill Payne is the 2010 BNZ University of Auckland Business School Entrepreneur In Residence. www.billpayne.com

2 Responses to “Angel Group Deal Flow Statistics”

  1. Alan says:

    Bill,

    In an “average” year, approximately how many companies seek a first round of angel investment?

    How many rounds of angel investment would the “average” company seek before advancing to an institutional round?

    I am attempting to size the angel deal flow in the US.

    Thanks in advance for any assistance or answers you could offer.

  2. admin says:

    Hi Alan – Let me see if I can do justice to your questions:
    1. How many companies seek a first round of investment in a typical year? Angels are funding 50,000 to 60,000 companies per year (J. Sohl, U of NH). 40% are seed/startup stage, 60% are early or growth stage. At least half are receiving their first round of angel financing.
    2. How many rounds of angel investment do companies raise before an institutional round? This is a two-part question: Typically, companies raise 2-3 rounds of angel capital. Some raise more, some achieve positive cash flow with 1-3 rounds, some raise venture capital. BUT, very few angel funded companies raise venture capital. About 1000 companies raise their first round of institutional money each year, while angels probably fund 30,000 companies per year. So, you can see, the statistics suggest that VC funding is rare for angel funded companies.
    Hope this help!
    Bill