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Angel
Power – An Angel Survey - Part 1
By Dee Power
and Brian E. Hill
also see Angel
Survey - Part 2
Industry
Analysis and Investment Valuations: Prevent Leaving Money on
the Table
Angel investors,
or individuals who invest in private companies, may be more important
to the growing economy and the advancement of technology than
any other source of capital. Angel capital is critical to early
stage companies.
According
to an estimate by the Center For Venture Research, University
of New Hampshire, 50,000 companies received $40 billion dollars
of angel funding for the year 2000 and there are about three million
individuals in the United States that have made an angel investment.
Since there are no reporting requirements for private investments,
these estimates may be substantially lower than reality. Comparatively,
approximately only 7000 companies received capital from venture
capital firms in 2000 and of this, only 28% was invested in early
stage companies.
In addition
to the money they invest, angel investors act as mentors and advisors
to their portfolio companies providing much more than just dollars.
Methodology
The angel
investor survey information presented here is based on a survey
completed by Brian Hill and Dee Power, founders of Profit Dynamics,
Inc., in June 2001. Approximately 500 individuals who have been
known to invest in private companies were asked to complete a
survey of 10 questions, 2 of which were essay questions, and the
remainder multiple choice or ranking. The survey also asked the
age, education level, and the average amount invested per company
per investment made.
Fifty individuals
completed the survey and resided in various geographic areas of
the country including Southern and Northern California, Pacific
Northwest, Southwest, Midwest, the South and the East Coast.
The responses
of the angel investors were compared to the responses to a series
of surveys, also conducted by Profit Dynamics Inc. of 250 venture
capitalists and of over 100 entrepreneurs actively trying to find
capital. The venture capital surveys were conducted each year
from 1998 through 2001. The entrepreneur survey was conducted
in April and May of 2001.
The entrepreneur
results are important to include as they explain some of the frustration
experienced by both investors and entrepreneurs. The expectations
on both sides of the entrepreneur - investor equation are often
not met. This lack of communication is even more important as
a deterrent to investment with the angel investor than the venture
capitalists. The dialogue between the entrepreneur and the angel
investor is more often one-on-one and more likely to take place
on a personal level, than that between the entrepreneur and the
venture capitalist.
Questions
asked of the Angel Investor participants:
- What do
you feel is the most critical mistake entrepreneurs make in
their business plan?
- What is
the average closing time it takes between when you receive a
business plan and making the investment in the company?
- Have you
ever used an on-line matching service to find a company to invest
in?
- What rate
of return do you expect for your investments?
- What is
the most important factor when valuing a company when making
an investment?
Angel
Investor Demographics
The average
amount of investment
The average
amount invested by the individual angel is $72,000. The range
most often given was between $20,000 to $35,000 with the highest
range of $250,000 to $500,000.
Average age
of an angel
The average
age of the respondents was 49. 54% were between the ages of 46
to 55, 25% were between 36 to 45 years old, 13% were between 56
to 65 years old, with 4% between 66 to 75 years old, and 4% between
25 to 35 years old. The youngest angel was 25. No angel was older
than 75.
Experience
in investing
78% of the
angels had more than five years of experience investing in private
companies, 11% had less than 1 year, and 11% had from 3 to 4 years
experience.
Education
level
75% had graduate
degrees, an additional 17% had graduated from college and 4% had
at least attended college.
What is the
most critical mistake entrepreneurs make in their business plan?
|
Mistake
|
Angel
Investors
|
Entrepreneurs
|
Venture
Capitalist
|
| Unrealistic
projections |
32% |
8% |
21% |
| Weak analysis
of market/competition |
32% |
16% |
18% |
| Not realistic
about challenges |
24% |
27% |
|
| Incorrect
valuation and exit strategy |
|
12% |
10% |
| Lacking
clarity |
|
16% |
17% |
| Incomplete
|
|
15%
|
8%
|
| Management
weak |
|
4% |
8% |
| Mistakes
and errors |
|
|
10% |
| Other |
|
4% |
18% |
Angel
Survey - Part 2
|
