SOURCE: Ewing Marion Kauffman Foundation

July 11, 2006 09:15 ET

Angel Groups Growing, Says Angel Capital Education Foundation Analysis

KANSAS CITY, MO -- (MARKET WIRE) -- July 11, 2006 -- Individual angel investors continued to form organized investor groups with the number of angel groups increasing by nearly 60 percent in the past three years, from an estimated 150 in 2002 to 250 last year, according to an analysis by the Angel Capital Education Foundation (ACEF) and the Ewing Marion Kauffman Foundation.

The survey of angel group members of the Angel Capital Association also revealed that the average angel group invested $1.45 million and that the average angel group invested $266,000 per round and $387,000 per company during calendar 2005.

Angel investor groups are composed of wealthy individuals who pool resources and investment expertise. The groups, which are distributed in most U.S. states, are creating a new type of capital for high-growth, early-stage entrepreneurs who need $100,000 to $1 million in equity financing to grow their firms. During the last decade, this range of equity financing has been difficult for entrepreneurs to obtain, as venture capitalists have tended to make larger sized investments in later-staged companies.

While investments by angel groups are a small fraction of the estimated $23.1 billion in total angel investment last year, the analysis indicates that the professionalism and sophistication of angel groups is increasing along with the number of groups.

For example, angel groups are not only getting more formalized within their own organizations, they are developing standard processes to work together to co-invest in entrepreneurial ventures on jointly negotiated terms. This new concept of angel syndication should benefit entrepreneurs as it appears to provide for larger investments and may eventually reduce the number of presentations entrepreneurs need to make before each angel group they meet.

Angel groups are also working more closely with venture capitalists. According to the report, 45 percent of the reported angel group deals had co-investment with venture capital firms last year.

"Angels have gone from investing as individuals and sometimes forming ad hoc groups for certain investments, to creating formal groups with robust investment processes," said Marianne Hudson, executive director of ACEF and entrepreneurship director of the Kauffman Foundation. "As the percent of venture capital dollars invested in early-stage companies continues to drop relative to the total dollars venture capitalists invest, angel groups are playing an increasingly important role in the funding of these ventures. Many of today's angel investors are far more educated about investment in great part thanks to such sophisticated angel groups who have shared best practices," she said.

In other findings in the report, angel groups:

--  Reported an average 41 members per group.
    
--  Made an average 5.46 investments in 4.49 companies and group members
    invested an average $33,236 per deal.
    
--  Had a preference for investing in the medical device and software
    industries in 2005 followed by software companies and biotechnology.
    
--  Has operated for 4.3 years.
    

The analysis was released at the ACEF's recent annual North American Summit and the PowerPoint noting the statistics is available at www.angelcapitaleducation.org.

The Angel Capital Education Foundation, a program of the Ewing Marion Kauffman Foundation, promotes education and research in the field of angel investing. ACEF holds conferences and meetings for angel group leaders, educational workshops and seminars for individual angel investors, builds data on angel investing, and supports research on the field. This work is designed to improve the quality and quantity of early-stage financing available for innovative entrepreneurs. More information is available at www.angelcapitaleducation.org.

The Ewing Marion Kauffman Foundation of Kansas City is a private, nonpartisan foundation that works with partners to advance entrepreneurship in America and improve the education of children and youth. The Kauffman Foundation was established in the mid-1960s by the late entrepreneur and philanthropist Ewing Marion Kauffman. Information about the Kauffman Foundation is available at www.kauffman.org.

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