Angel Investing Brought To Earth

Bill Warner Sunday, October 05, 2008

A standing room only crowd participated in a recent Angel Connection Event where angel investors, entrepreneurs and other business professionals gathered to learn what angel investing is all about as well as to meet new business associates.

Co-sponsored by WRAL Local Tech Wire and the Triangle Accredited Capital Forum, this is the first Angel Connection event.

“We are thrilled with the interest shown in last night’s event and the exciting information provided about the world of angel investing,” said Rick Smith, General Manager and Editor of WRAL Local Tech Wire.

“This event more than exceeded our expectations. We all got the opportunity to get some valuable information about angel investing that we don’t normally see,” said Bill Warner, Chairman of the Triangle Accredited Capital Forum.

Featured speaker

This inaugural event featured Catherine Mott, CEO and founder of BlueTree Capital Group and BlueTree Allied Angels of Pittsburg, PA, and board member of the Angel Capital Association.

Catherine delivered a comprehensive perspective of the angel investing industry, highlighting some very important trends:

  • Of the 500,000 start-up companies in the US each year, 40% will be financed by friends and family, 10% by angel organizations and less than 1% by venture capital firms.
  • Formal angel investor organizations are rapidly growing from nearly 100 in 1999 to over 250 today, 165 of them are members of the Angel Capital Association, representing over 6,800 angels, an average of over 40 angels per organization.
  • However, it is estimated that there are between 200,000 to 500,000 active angels throughout the US who have invested over $26B in 2007, growing from $15B in 2002.
  • Angel organizations bring much more power and understanding to the investing process via their pooled deal flow, business experience, industry knowledge, due diligence and investment strength.
  • The average amount invested per round by each investor group has increased 10% to $266K in 2007, the vast majority of which is going into seed or early stage companies.
  • Medical devices and software lead the way as the most popular industry for angels, followed closely by business products and services, industrial/energy, IT services and biotechnology.
  • Angel organizations are quite territorial, wanting to invest locally or regionally. However, with the growth of syndication between angel organizations, their reach is widening.

Profile of an angel

Catherine gave a quantitative profile of what a typical angel is. So when you are searching for angels, here is what they look like:

  • Nine years of investing experience
  • Investing in 10 companies
  • Has had 2 exits
  • 14.5 years of experience as an entrepreneur
  • Has founded 2.7 ventures
  • 57 years old
  • 10% percent of wealth in angel investing
  • Has a master’s degree

“Survey says”

Catherine shared the results of a recent survey by the Kauffman Foundation that sheds some light on how angel investing is performing:

  • Overall, angels are achieving a 2.6X return on their investment over a 3.5 year period for an IRR of 27%.
  • Over 50% of angel investments have less than a 1X return on investment, with 35% being dead losses.
  • 34% of their investments have a 1 to 5X return, while the remainder is greater than 5X.
  • Spending considerable time in due diligence directly correlates to investment success. Low due diligence time has led to a 1.1X return in 3.4 years, while high due diligence time has led to a 5.9X return in 4.1 years.
  • Having angels with relevant industry experience also correlates to investment success, indicated by 1.3X returns in 3.6 years with no industry experience and 3.7X returns in 4.0 years with considerable industry experience.
  • Angel participation as advisors and board members as well as ongoing operational and financial monitoring helps increase the chances of success. Those that were involved 1 to 2 times per year achieved 1.3X returns in 3.6 years, while those involved 1 to 2 times per month achieved 3.7X returns in 4.0 years.
  • Interestingly enough, those investments that did not require a follow-on investment from the same angel organization got better returns than those that did; 3.6X returns versus 1.4X returns respectively.

Future trends

Catherine predicted that the world of angels is going to have more important changes in the future:

  • There will be a rapid increase in university-connected angel groups
  • Green/clean-tech company investments are emerging rapidly
  • Women angel groups will be forming
  • Co-investment regionally, US-wide and cross-border will increase

Filed Under: Angel Investment, Financing a Company



Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.

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