Angel Investors Keep Getting Screwed

The 2015 HALO Report from the Angel Resource Institute just came out and the news is great for entrepreneurs, but horrible for angel investors. 

 

- Pre-money valuations of seed deals reached $4.6mm, a 53% increase from $3mm in 2014.   Of note, this is the highest valuation in HALO history and it means angels are getting worse pricing for essentially the same stage of deal.  Unless there are massive exits, at some point as angels realize poor returns from their investments, their desire to invest in seed stage deals will wane and there will be a dearth of angel capital in the market.  As an entrepreneur make hay while you can because at some point angel investors will burn out.    

 

-The median angel deal size is now $850k, up from $510k.  The average angel deal is now $1.2mm, up from $835k. Interestingly, from 2012 to 2014 median and average round sizes were relatively stable at $500k and $830k.  2015 is the first year since 2012 that angel round sizes materially increased.  It could be a sign that startups are using more capital up front and becoming less efficient, even though it’s never been easier or cheaper to start a technology business.  This is unlikely.  What’s probably happening is entrepreneurs are taking advantage of the sheer oversupply of angel capital in the market, which is further evinced by the rising valuations in the first point.  What this means for an entrepreneur is your competitors and other startups are also raising big rounds, and unless they’re burning money frivolously, they will likely be further along by the time they go out for the next round.   The bar for the next round (Series A, Pre-Series  A) is going to go up.    

 

In summary it’s a great time to be an entrepreneur as you’re going to be able to raise more money and preserve more equity than ever before.  The downside to that is your competitors will be doing the same so the milestones you need to hit for the next round will increase (revenue, paying customers, etc).

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