2003 Angel Market Rebounds,
But a Troublesome Post-Seed Funding Gap Deepens
UNH Center for Venture Research Releases
New 2003 Angel Market Analysis
Contact: Lori Wright
UNH Media Relations
April 28, 2004
Editors and News Directors: Jeffrey Sohl, director of the
Center for Venture Research at the University of New Hampshire,
is available for comment at 603-862-3341.
DURHAM, N.H. - The angel investor market has shown signs of a modest
recovery in 2003, with total investments of $18.1 billion, up from
the previous year of $15.7 billion, according to new research on
the angel investor market from the Center for Venture Research at
the University of New Hampshire.
In 2003, 42,000 entrepreneurial ventures received angel funding,
a 16 percent increase from 2002. The number of active investors
was 220,000 individuals, an increase of close to 10 percent from
2002, with an average of four to five investors joining forces to
fund an entrepreneurial start-up. While the increase in total investments
is encouraging, a post-seed funding gap, identified nearly three
years ago, has persisted, according to Jeffrey Sohl, director of
the Center for Venture Research (CVR).
“Angels have traditionally been the largest source of seed
and start-up stage capital in the United States and angels continue
to favor these stages, with 52 percent of the 2003 angel investments
in seed and start-up stage entrepreneurial ventures. This seed and
start-up preference represents the largest stage for angel investment
activity,” Sohl says.
Of notable exception is the increase in post-seed investing by
angels, a trend that has persisted over the last three years, according
to the center. In 2003 angel deals in the post seed stage represented
35 percent of the investments.
“Clearly, angels are not abandoning seed and start-up investing,
but it appears that market conditions are requiring angels to provide
some follow-on funding for their investments in the form of additional
rounds of financing,” Sohl says.
The post-seed funding gap, in the $2 to $5 million range, has forced
angels to redistribute seed investment dollars to this post-seed
stage in order to fill the needs created by the post-seed gap, research
shows. Angels are shifting their investment strategies toward post-seed
investments and thus reducing the proportional amount of seed and
start-up capital. This restructuring of the angel market has, in
turn, resulted in fewer dollars available for seed investments,
thus exacerbating the capital gap for seed and start-up capital
in the United States.
The CVR's sector analysis shows software garnered the largest angel
attention, with 26 percent of total angel investments in 2003. The
remaining investments were approximately equally weighted across
high tech sectors, with each having about 10 percent of the total
“This market level sector diversification indicates a robust
investment pattern and provides a foundation for reasonable growth
in the market. Since the angel market is essentially the spawning
grounds for the next wave of high growth investments, this sector
diversification provides an indication of investment opportunities
that will be available for later stage institutional investors,”
According to the CVR, the angel market has continued the sustainable
growth rate of new investors that began in 2002. For this sustainable
growth to continue requires a reasonable augmentation in active
investors, and thus, level of participation is an important consideration.
“While the number of individuals that are members of angel
groups are increasing, there is a larger percentage of latent angels
(individuals who have the necessary net worth, but have never made
an investment),” Sohl says.
In 2003, 48 percent of the membership in angel groups was latent
angels, which represents a steady increase over the last four years.
“This increase in latent investors over time indicates that,
while many high net worth individuals may be attracted to the early
stage equity market, they have not converted this interest into
direct participation. This lack of active involvement may be the
result of the current trend to rush to form angel groups, rather
than meeting the more basic systemic need for educational programs
to move the latent angel to the active investor,” Sohl says.
The Center for Venture Research has been conducting research on
the angel market since 1980. The CVR's mission is to provide an
understanding of the angel market and the critical role of angels
in the early stage equity financing of high growth entrepreneurial
ventures. Through the tenet of academic research in an applied area
of study, the CVR is dedicated to providing reliable and timely
information on the angel market to entrepreneurs, private investors
and public policymakers.
For more detailed information on the 2003 Angel Investor Market
research, visit http://www.unh.edu/cvr/.
The Center for Venture Research also provides reports on state level