[Updated 7/9/12 12:42 am. See below.] The average amount of capital that angels invested in early stage companies during the first three months of 2012 declined slightly from last year, according to a new report on U.S. angel activity.
The average size of deals involving only angels and angel groups was $940,000 during the first quarter, according to The Halo Report, a snapshot of angel investment trends issued yesterday by the Angel Resource Institute, CB Insights, and Silicon Valley Bank. That represents an 11 percent decline from the average deal size of $1.06 million in 2011.
But the median deal size, which represents the middle number in a numerically sorted data set, amounted to $700,000 during the first quarter—unchanged from the $700,000 median of 2011. The median deal size is often more meaningful than the average deal size because averages can be skewed by a few very large or very small deals, says CB Insights CEO Anand Sanwal.
Angels are high net-worth individuals who typically invest their own funds in startup companies, and interest in angel activity has increased in recent years. As venture capital firms have pulled back, angel activity has been on an upswing, according to Steve Flaim, current chairman of the Tech Coast Angels (TCA), a network of Southern California angel investors. (The Halo Report identifies the TCA as one of the most active groups, along with Alliance of Angels, Clean Energy Venture Group, Central Texas Angel Network, and Launchpad Venture Group.)
“Traditional venture capital investors have been shifting their focus to later-stage deals,” Flaim says. As a result, he says individual angels, angel groups, and family investment funds have stepped in to fill the need for early stage capital.
[Updated with note from Angel Resource Institute.] Sanwal says The Halo Report, based on responses to a survey conducted by the Overland Park, KS-based Angel Resource Institute, found that angel investors put a total of $142.5 million into 149 U.S. deals during the first quarter. The institute says it collected data on 602 angel deals nationwide over a 12-month period, from April, 2011, through March, 2012. The aggregate value of the deals was $749.7 million. Marianne Hudson, executive director of the Angel Capital Association and Angel Resource Institute, says in an email to me today the Halo Report is not meant at this time to describe the total amount of angel group investment that occurred during that time period, although they aim to describe the total market eventually.
In a new data point, the Halo Report also determined that the median pre-money valuation for angel deals (pre-Series A round) was $2.5 million. The Angel Resource Institute and CB Insights began working on the data together last year, producing one previous report on 2011 angel investment trends. While it is generally preferable to compare quarterly data with the same quarter of the previous year, Sanwal says the new report compares the first-quarter data with the entire year of 2011 because the data set is new.
Angel investments in Internet startups accounted for more than a third (34.9 percent) of the 602 angel deals the report counted during the year that ended March 31. However, investments in healthcare startups accounted for the biggest chunk of invested capital (32.7 percent of the $749.7 million). That actually makes sense to the TCA’s Flaim, who focuses on life sciences deals.
While it takes a relatively small amount of capital—a few hundred thousand dollars or less—to start an Internet company, Flaim says it’s harder to get successful outcomes with Internet deals.
“Within the TCA I’ve seen a number of very savvy Internet, Web, and social media investors realize that the chances of hitting on a deal are better in healthcare,” Flaim says. “We’re very picky, and we avoid drug discovery deals, which take too long and require too much capital. But if you kind of sniff around the corners of healthcare, you can find opportunities that align within the angels’ framework of investments over three to seven years.”