In 2009, angels and venture capitalists invested about the same total dollars, approximately $17.6 billion.
The difference between these two important sources of capital is that more than 80 percent of angels’ money went to firms in the seed/startup and early stages. Nearly 65 percent of VC investments were made in expansion and later stage companies. Less than 10 percent of VC dollars were invested in seed/startup deals.
There’s a logic to this that is important for entrepreneurs to understand.
First, angels’ interests, investment objectives and appetite for risk are closely aligned with entrepreneurial opportunities.
Angels are active, accredited investors. They invest their own money and their own time. They generally invest in local companies. They are motivated by returns, but also by community development and love of mentoring entrepreneurs.
Second, according to the Center for Venture Research (CVR) and PwC MoneyTree, there are many more angel investors (about 250,000) than VC firms (around 800).
As investors in earlier stage companies and, therefore, riskier deals, angels make more and smaller investments than VCs.
In 2009, angels invested in approximately 57,000 deals. In the same time frame, VCs invested in only 2,800 deals. According to the Angel Capital Association, the average angel group invests about $218,000 per round.
This means that most seed and early stage entrepreneurs stand a better chance of attracting angel investment than VC funds and that when they do the amount of capital that angel groups typically invest more closely matches the funding that entrepreneurs need.
