Business Angel investment is rising steadily in the United States. The trend today is towards funding home-state projects in a fairly narrow range of business fields.
Business Angels are today major players who are absolutely essential to the process of financing young companies. For several years now their overall contribution to startups’ initial development drive has been on the rise. Now a new study, the Q1 2013 Halo Report, carried out jointly by the Silicon Valley Bank and the Angel Resource Institute, highlights the increase in funds invested in the early part of 2013. The median package size during first-quarter 2013 stands at $680,000, rising to $1.5 million for deals where angel investors co-invest with other types of financiers, an increase of over 23% on the 2012 figure. So far this year US business angels have helped finance startups to the tune of $20 billion.
Early-stage investment concentrated in three sectors
The main role of business angels is to ensure continuity between the immediate financing needs of growing companies and their first major round of capital raising. Accordingly, close to 80% of all their investments were made in start-ups at the seed or early stage. The business angel model is decidedly less suited to companies that have reached the expansion stage (which attracted just 19% of business angel investment) or those which are already mature (representing only 2.3% of total investment). The report also reveals another major trend in business angel deals: close to 72% of angel group deals are now being completed by companies in the mobile, healthcare and Internet sectors, while the energy and industrial sectors account for barely 8% of total financing.
Home-state investment rivals California and New York hubs
The Halo Report shows that US business angels are now favoring local investment strategies, fostering deals close to home, with over 80% of angel investment taking place in Q1 2013 in the angels’ home state. This local mindset has resulted in an ongoing increase in geographical innovation areas that are now rivaling New York and California. Although over 25% of all business angel project deals are still done in California and New England, the report notes an increase in financing in the southwest region of the United States. This region has now overtaken California, garnering over 18% of US angel group dollars in 2013. As the trend towards investment groups committed to fostering economic development and entrepreneurship in their own state increases, alternative networks for startup financing are being created, one example being the Golden Angels Network in Milwaukee, a major investment group of Marquette University alumni focused on Wisconsin and Illinois.