Venture Capital vs. Angel Investors – These Facts Might Surprise You

 

John Huston, a leading light in the Angel investing community, recently shared some very interesting information that’s hard not to get your attention.  According to data from both the National Venture Capital Association and the Angel Capital Association (2004 to 2007), Angels invested just as much money and had a higher 20 year rate of return than Venture Capital firms.  VC’s invested $24.4B over the 3 year period while Angels invested a nearly equivalent $24.3B.  In addition, when looking at 20 year return data (through 2006) VC’s earned an average of 19% and Angels 22%.

Of course, there are structural and timing differences between Angels and VC’s to factor in.  The investment focus for Angels  is pre-seed (pre-revenues) while VC’s are cash-flow break-even.   As such, the average deal sizes are different (Angels average $473k and VC’s $7.5M) as are the volume of deals  (51k for Angels and only 3k for VCs).  

In a time of tighter and tighter capital and credit markets, the magnitude of dollars flowing into new businesses from Angels and the returns they generate are worth taking note.  Angels now number over 225k high net worth people, 10k of whom are in groups.   The latest angel study from November , 2007 showed that a typical deal is now earning a 2.6x return in 3.5 years, for a 27.7% IRR.