Less Angel Money Flowing Into Seed Deals

Seed stage investments have become so popular that even angels are finding it difficult to keep up their pace.

To wit: Half of the deals done by angels between 2002 and 2007 were with seed and early stage companies, but that figure fell to 35 percent last year and is likely to be 35 percent or less through the first half of this year, says Jeffrey Sohl (picture), a professor at the University of New Hampshire’s Whittemore School of Business & Economics who tracks angel investing trends.

Angels, like VCs, are being forced to reserve more of their cash for follow on rounds. Slow exit markets are the cause.

“It makes me extremely nervous,” says Sohl. “Who’s going to do the seed [deals]? Certainly not the venture capitalists.”

It isn’t as if angels haven’t been busy. More than 259,000 angels poured $17.6 billion into more than 57,000 startups last year — an investment pace that appears to have continued through the first half of this year, Sohl says. The average round was between $300,000 and $350,000, and angels stayed largely regional in their investment focus.

Angels have become the go-to guys for seed stage entrepreneurs. According to a survey released today from Dorsey & Whitney, 59 percent of early stage entrepreneurs who raised money got it from one or more angels. Only 19 percent took cash from early stage VCs. Equally interesting is that more than two-thirds said they would return to angels for a second round.

The firm interviewed 363 startups, 64 percent of which were seeking $1 million or less.

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2 Comments

  • Our Springboard companies have pursued angel investors and family offices as their preferred seed and early stage investment source with great success. We also like early funds such as Greycroft.

  • Based on what data and methods is Professor Sohl able to report that angels invest $17 billion/year? Isn’t that number unknowable? He surveys the organized angel groups, but they do not invest even a small fraction of that amount. (There are maybe 100 such groups in the US, doing at most one deal per month on average.) Angel transactions are not reported or surveyed by Thomson Reuters or others. There is no meaningful data available to my knowledge.

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