The Impact of Angel Investors on Entrepreneurial Firms
August 19, 2016
Marianne Hudson
Executive Director, Angel Capital Association
Among the hidden heroes of America’s economy are angel investors – high net worth people who invest in innovative startups. These angels offer a combination of financial and intellectual capital to entrepreneurs through mentorship and providing connections to potential customers as well as other investors. Both kinds of capital help companies grow their business.
Angels support many tech companies, hot in Arizona per recent reports – but they also finance high-growth businesses for other industries such as life sciences, energy and consumer products. You can see this variety in some of the “name brand” companies that received their first funds from angels: Facebook, Google, Amazon, BestBuy and Starbucks – just to name a few.
It is important to understand that angel investors are not just in Silicon Valley – they are everywhere, including Arizona. Desert Angels, a Tucson-based group of 90 angels, has been ranked among the most active angel investment groups in the country for many years. Arizona Tech Investors in Phoenix have invested $12.25 million in 43 Arizona companies. Many other angel investors throughout the state invest individually, connecting through Arizona’s “startup ecosystem” of business incubators, accelerators, universities, expert attorneys, programs led by the Arizona Commerce Authority and others. You can think of angel investors as part of “Main Street” for a large number of high growth startups.
The measuring stick of any good angel is financial return on their investment portfolio – it is also amazing how many angel investors are excited about non-financial returns. Common reasons angels tend to invest is to simply help create jobs and innovation in their communities.
Highlighted below are a few areas where American angel investors really shine:
- In 2015, angels estimated to invest nearly $25 billion in more than 71,000 businesses nationally.
- In 2015, 73 percent or 61,000 of investments were in true startups and early-stage companies. These types of businesses are most likely to lead to job growth. According to Census Bureau data, startups comprise less than one percent of all companies, but generate 10 percent of new jobs in any given year.
- Angels supply nearly 90 percent of outside equity to startup companies – after friends and family. It may surprise many that venture capital (VC) is a smaller player in the startup stage of companies. Angels fund 20 times the number of seed-stage companies than VCs year after year. Without angel investors, many of these companies would not be around. Of course, VCs play a key role by putting in very important capital for these companies to expand.
- Young firms in the U.S. with angel financing have an increased probability of survival, improved performance and growth of 30 to 50 percent on average – based on a study by Harvard and MIT researchers.
The national picture is interesting, but the importance of good angel investors is really felt on Main Street with really interesting companies. For instance, Arizona angels supported HTG Molecular Diagnostics, a Tucson biotech company that is employing nearly 100 people. In addition, Tempe-based Picmonic is the world’s leading visual learning community for medicine and nursing students with over 125,000 users worldwide.
How does Arizona’s angel community grow? Increasing the awareness to more potential investors of the opportunities available through education – I also know many in Arizona’s existing angel community are very happy to share their experiences.
As this expanding investment group continues to make a positive impact for entrepreneurs, I see a bright future with more and smarter angels. Their contribution to economic growth in Arizona as well as throughout the U.S. is fundamental to innovation and economic success.