Angel Survey From Fenwick & West Finds Rounds Increasing In Size

The seed stage environment has undergone changes in recent years as it seems more angels are actively pursuing startups and raising institutional-like funds. In part, the angels have no shortage of young companies to go after because many Internet companies and mobile app developers can launch with far less cash than in previous years.

The result is that the amount of capital raised in angel/seed financings has increased, and can now exceed $1 million per round. That’s according to the Mountain View, Calif.-based law firm Fenwick & West, which today released its first Angel/Seed Financing Survey.

Complete results of the survey are available here.

The firm, which has been publishing its Silicon Valley valuation survey since 2002, noted that the angel investment environment has become more pronounced as VC investing has dropped over the years.

Among the survey’s key findings:

* Convertible notes were used more frequently in smaller financings, while preferred stock was more prevalent in larger financings, which is notable since convertible note funding agreements usually require a valuation cap.

* Seed stage funds led 45% of the financings, individual angels led 31% of the financings and venture funds led 24% of the financings, which is in line with how it seems a lot of VCs are steering clear of early stage financings.

* The median pre-money valuation for preferred stock financings was $3.4 million for internet/digital media financings and $2.7 million for software financings.

The survey looked at 52 Internet, digital media and software companies that raised angel financing in Silicon Valley and Seattle in 2010. The survey defined angel investment as a company’s first round of financing from $250,000 to $2 million, led by a professional investor, and it excluded friends and family rounds.

The Fenwick & West study was co-authored by Barry Kramer, Steven Levine and Michael Patrick.

In the April issue of VCJ, my colleague Mark Boslet chatted with Patrick about the recent increase in up rounds that the firm is seeing. The story is part of an ongoing feature in which VCJ sits down with legal eagles to discuss issues affecting the VC industry.

VCJ subscribers can read the story here.

Look for the May issue of VCJ, in which my legal reporting expert June Bell visits Cooley, where she talks with Mark Tanoury, a partner at the law firm.

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