Probability of Success in Raising Angel Capital

June 7 2011 3 Commented

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.

3 Responses to “Probability of Success in Raising Angel Capital”

  1. Matt Kemp says:

    Hi,

    Does this article mean that 1 in 72 groups looking for funding EVER get funded?

    Or, does this article mean that when a group approaches any one angel investor, the odds are 1 in 72 of gaining funding from that particular investor? So, if a group approaches 10 angel investors, their odds are now roughly 1 in 7 of getting funding.

    Thanks!

    Matt

  2. admin says:

    Thanks, Matt, for your inquiry. Let’s discuss some definition first. Groups refer to organized angel groups. Startup companies apply to angel groups for funding. Companies also seek funding from individual, solo angels who have chosen not to join angel groups.
    The data reported in this blog referes to the likelihood that entrepreneurs seeking funding for their startup companies from organized angel groups will be successful. 1 success among 72 applicant entrepreneurs seeking capital from angel groups is a single datapoint. But, other groups report similiar success rates for entrepreneurs. VCs, on the other hand, tend to report success rates for entrepreneurs seeking capital from than at 1% or lower.
    Frankly, we don’t have any data on the success rate for angels pursuing solo angels, although I am confident that the success rate is less than 10%. The real issue when approaching solo angels is do they have an appetite to fund the whole round of investment, or is the entrepreneur forced to successfully approach a dozen or more solo angels to get the necessary commitments to complete a round of funding.
    Finally, you asked about EVER getting funded. While all of us angels encourage entrepreneurs who have been turned down for funding to come back for funding later once the issues precluding funding have been resolved. And, a few are successful in raising money later. But, I don’t have any statistics on the success rate of entrepreneurs who make multiple sequential attempts to raise money from angel groups.
    Hope this is helpful,
    Bill

  3. Matt Kemp says:

    Thanks Bill!! That was helpful.