The picture of the angel investing world has always been sparse. Wealthy individuals—alone or in groups—who put money into young, private companies often don’t seek or get a lot of attention, especially compared to venture capitalists. A report released on Tuesday, April 16, based on about 800 U.S. angel group deals worth $1.1 billion in 2012 offers a look into what’s happening in the angel world. (The Halo Report is published by Silicon Valley Bank, the Angel Resource Institute, and CB Insights. The data is compiled from surveys and public documents.)
Here are four insights from the report:
1. Angel money moves beyond Silicon Valley.
New England and California together made up 31 percent of angel group deals in 2012, down from 35 percent the year before. Angel investment generally spreads beyond Silicon Valley and Boston, compared with venture capital. Less than one-third of angel funding is invested in California and Massachusetts, compared to two-thirds of venture capital, according to Robert Wiltbank, a researcher at the Angel Resource Institute and partner at Montlake Capital. The four most active angel groups are in New York, Southern California, Boston, and Austin.
2. Health care is shrinking.
Angel groups invested less in life sciences and other health-care businesses in 2012: These deals made up 21 percent of the total, down from 25 percent the year before. Investments in mobile and telecom startups grew by about the same amount, to 13 percent in 2012.
3. Convertible debt is up.
The percentage of angel group investments structured as convertible notes—generally meaning loans that convert to equity when the company raises its next round of funding—nearly doubled to 11 percent in 2012, from 6 percent the year before. Convertible debt is considered a favorable structure for entrepreneurs because it delays putting a price tag on the company, potentially allowing founders to hold on to a greater ownership stake when the debt converts to equity.
4. Valuations are steady.
Despite the growing interest in angel investing, competition to invest in early stage ventures isn’t driving up prices. The median valuation for startups when angel groups invested was $2.5 million, the same as the year before. “Most of the ventures I see around, they don’t usually have more than one term sheet,” says Wiltbank. “They don’t have multiple bidders.”