The current issue of the National Dialogue on Entrepreneurship features a recent Advocacy working paper, “The Importance of Angel Investing in Financing the Growth of Entrepreneurial Ventures,” by Scott Shane.
NDE summarizes the findings:
A new US Small Business Administration Office of Advocacy-sponsored research report assesses the role of angel investors in funding new entrepreneurial ventures. The report is critical of existing analyses of the scope and scale of angel investing in the US. It finds that the angel capital market is smaller than previously estimated, and that most angel-backed firms are not potential high-growth start-ups. Instead, they share similarities with many other established small firms. For example, angel backed firms had been operating for an average of more than 13 years, and that the largest portions of angel investing occurred in the retail (25% of all investments) and personal service (12.5% of all investments) sectors. While the report includes a number of cautions about the size of angel capital markets, it does acknowledge that angel investing remains a significant activity. Between 2001 and 2003, angel investors backed anywhere from 50,000 to 57,000 companies for a total annual investment of $23 billion.
Dr. Charles Ou, a senior economist in the Office of Advocacy, discussed this paper at the most recent Academy of Entrepreneurial Finance meeting on September 25 at the UNLV campus. Causes of the discrepancies between the new estimates and the existing estimates by the Center for Venture Research (at the University of New Hampshire) were explored. Most attendees agreed on the importance of having large, representative samples of angel investors, angel investments, and angel-financed companies for a better understanding of angel investment activities in the U.S. To reduce the high costs of a huge sample, an over-sampling of a subset of the most important angel investors—the accredited angel investors, could be included in the sampling design; an approach used by the Survey of Consumer Finances.
— John McDowell