Probability of Success in Raising Angel Capital
According to J. Sohl, the Center for Venture Research, about 20,000 seed/startup stage entrepreneurs are successful in raising money from angel investors each year in the US. An additional 30,000 later-stage entrepreneurs raise angel money annually, many of whom raised seed/startup capital from angels earlier. Angels seem to be making more follow-on investments in portfolio companies because venture capitalists are making few investments in round size less than $5 million.
Sohl also estimates that angels in the US invest about $20 billion annually. According to the Angel Capital Association, the average angel seed/startup round of investment is about $300,000, with about ten angels investing $30,000 each.
So…with all this capital being invested annually in the US in startup entrepreneurs, what is an entrepreneur’s chance of success in angel fundraising? Unfortunately, it is not good. I gathered this data from Southern California’s Tech Coast Angels several years ago, showing that 1 in 72 entrepreneurs (1-2%) who applied for funding were successful:
PRESCREENING: 1 in 4 deals proceeds to SCREENING
SCREENING: 1 in 3 deals proceeds to DUE DILIGENCE
DUE DILIGENCE: 1 in 3 deals proceeds to an INVESTMENT MEETING
INVESTMENT MEETING: 1 in 2 deals raising money
OVERALL: 1 in 72 companies who apply for funding are successful
Some angel groups are less likely to fund deals than are others. I have heard funding rates of less than 1% from a few angel groups, while other groups report funding rates as high as 5%. . And, I think the measures of funding rate vary from group to group. For example, some groups regularly co-invest with neighboring group who have already completed Due Diligence on the deal, increasing the funding rate for the co-investing group. Other groups may not count a deal as funded unless all the investment in the round came from their group. But, I think it is safe to conclude that probably about 2% of entrepreneurs seeking funding from angels are successful – a pretty low probability of success.