How Angel Networks Work?

Companies raising capital should not assume that their funding requests exceed the maximum an angel investor can handle. Many angels are connected with angel groups that can accommodate capitalization exceeding the limit for one individual. Some arrangements are jointly funded by multiple sources. This many involve several individuals belonging to an angel group or a pooled fund operated by an angel network.

New companies should consider how their funding requests affect future flexibility of angel investors. The investment structure and valuation of equity shares must provide for seamless transition to the next rounds of financing. By approaching a group of angel investors, a company can receive broader input about providing an attractive long-term opportunity. Angels who form an association are more connected to the deal factors that are conducive to future investment appeal.

Angel Capital Association, a resource group and angel directory, indicates that the average investment by an individual angel investor is around $30,000. However, the average investment made by sources investing together within an angel investor group is about $250,000. In fact, angel groups tend to share information with other groups when the funding requested is greater than a single group can accommodate.

This trend is showing up in statistical research. Angel Capital Association reports that the groups of angel investors within its network annually place several hundred million dollars in the companies funded.

Despite the larger amount of money from angel groups, a higher number of deals appear to involve individual investors. The most reliable figures indicate that there are 50,000 to 60,000 angel investments made in the US annually. Many of these are not officially reported because of their private nature with individual angels. For example, data research firm, Angelsoft, generally reports about 25,000 submissions per year to the angel groups it tracks.

Only a small percentage of companies who submit to angel groups are eventually funded. Data from Angelsoft indicate that about 15 percent of companies survive initial screening, 9 percent make formal presentations, 6.5 percent reach the due diligence process by prospective investors, and 3 percent of initial applicants are actually funded.