By Cathy Connett, CEO and Managing Partner, Sofia Fund – posted on LinkedIn:
There’s more than $100 billion dollars currently being invested annually by venture capitalists, private equity firms and angel investors. Why do some businesses get a piece of the action and others don’t? It comes down to the fundability of the company.
Entrepreneurs may think they have a great business idea, but investors may not see it that way. To learn why, entrepreneurs need to look at their business from the investor’s point of view. Just like the founder, investors are looking for a match made in heaven – when both company founder and investor make money in the end and all live happily ever after.
As an experienced angel investor, managing partner and CEO of Sofia Fund, here’s my advice – consider this the ultimate primer on demystifying the angel world.
Know Your Angels
It’s not fake news that billions of dollars are being invested in start-up and early stage companies. But it’s important to know the facts about where those dollars are going – and why.
Angel investing is done by a community made up of individuals, networks and funds that focus on early stage companies. In 2017, angels and other early-stage venture capitalists invested more than $37 billion in companies, according to PitchBook, which tracks every aspect of venture capital. That’s $10 billion more than later-stage venture funders. Additionally, $19.1B in overall investment went into 73 unicorns (those companies with greater that a $1 billion valuation), like Outcome Health, Uber and Reddit. While unicorns attract 23% of the invested capital, they represent less than 1% of the total venture deal flow. That leaves plenty of funding opportunity for non-unicorn, early stage companies.
Who are these angels and where do they come from? According to The American Angel, a study published by Wharton Entrepreneurship and the Angel Capital Association (ACA) in November 2017, 55% of angel investors were previously a founder or CEO of their own start-up and are interested in backing others like them – from sharing their knowledge of the early-stage investment ecosystem to making connections to resources that enable entrepreneurs to grow their businesses. 51% of angel investors have a background in technology. The study also finds that 22% of angels are women — a number significantly higher than the number of women in the venture capital ranks. Read the full post here.