Franklin eyes

The Problem With Angel Groups

I just came across several information products online claiming that angel groups are the perfect way for entrepreneurs to raise business capital.

Respectfully, I disagree.  Here’s why.

  • There are about 300 angel groups in the United States at present.
  • The largest angel group in the United States is currently Tech Coast Angels.
  • Tech Coast Angels normally invest in about 10-12 new deals per year.
  • Assuming 300 angel groups each invested in 12 new deals per year, they would fund about 3,600 deals per year in total.
  • 57,225 companies received funding from angel investors in 2009, including follow-on investments.
  • Based on these numbers, angel groups funded less than 10% of all angel deals in 2009.
  • Angel groups are easy to find.  I’ve encountered people offering to sell lists of angel groups.  What a crock!  You can find the biggest and best list of them here for free.
  • Because angel groups are so easy to find, they are often inundated with business plans from entrepreneurs clamoring for attention.  What happens when the demand for capital far outpaces investor supply?  Investors get a lot pickier.  Is this the perfect environment for an entrepreneur?

Solo angels and informal investors represent a far better funding opportunity for most startup and early stage companies.   Here’s the story the numbers tell.

  • There were nearly 260,000 active angel investors in the U.S. in 2009.  An estimated 20,000 angel investors are part of organized angel groups, leaving a total of 240,000 solo angels. These solo angels were responsible for more than 90% of all angel deals funded in 2009, with an estimated total investment of more than $15 billion.
  • Informal investors (including friends, family, and associates) invested in more than 4,000,000 deals in 2009.  They provided more than $70 billion in small business funding in 2009.

You can draw your own conclusions from these numbers; the math is pretty straightforward.

All that being said, raising money from solo angels and informal investors takes time, lots of work, and persistence to succeed.  Some professional guidance won’t hurt either!