Angel Investors' Favorite Sectors
By iCrowd1014 Jun 25 '13 02:24 PM
While only a small portion of startups get funding from angel investors, the impact of angel investment is significant. According to the 2012 Angel Market Analysis published by the Center for Venture Research at the University of New Hampshire, angel investors contributed to 67,030 entrepreneurial ventures which resulted in the creation of 274,800 new jobs in the United States in 2012.
Another study, the 2012 Halo Report, conducted by the Angel Resource Institute, Silicon Valley Bank and CB Insights, highlights investment activity by angels and angel groups. The report aggregates data from angel group investment trends that accounted for 783 deals and $1.1 B in total rounds that also included co-investors and provides some useful insight into specific industry sectors.
Top Angel Sectors
While the range of industries that attract the angel funds is diverse, there is a clear concentration of investment in only a handful of industries. The top 3 sectors with angel deals in 2012 were internet, healthcare, and mobile/telecom. These three sectors combined made up 66% of the angel group deals with 31.9% in the internet sector; 20.9% in healthcare; and, 13.3% in mobile & telecom.
The distribution of invested dollars to and among these three top sectors was similar: they split 68% of the total share of dollars. Significantly, the share of investment dollars in mobile & telecom more than doubled from 6.7% in 2011 to 14.1% in 2012.
This concentration of investment by angel groups in these three sectors is not unexpected. Angel investments often focus on funding “high impact” industries that have the greatest perceived potential for growth.
Angel Investor Sectors to Watch?
Digging below the top level of investment reveals an interesting dynamic. Consumer product services and electronics saw a dramatic increase in deals between 2011 and 2012. Electronics experienced a dramatic increase in angel group funding and deals, receiving nearly five times the funding on more than twice the number of deals than in 2011. Consumer product services doubled their dollar share of investment. It remains to be seen if this is the beginning of a trend or merely a statistical anomaly for 2012.
Sector Distribution in Investment Crowdfunding
Investment crowdfunding (also referred to as equity crowdfunding) brings a new funding option to entrepreneurs and investment opportunity to investors. Investment crowdfunding is an online approach to presenting investment opportunities to investors. While investment crowdfunding is currently only available to accredited investors (non-accredited investors are waiting for the SEC to enact final legislation to allow them to participate), a handful of industries on investment crowdfunding sites have captured the attention of accredited investors. According to an infographic created by EquityNet, accredited investors on their site have invested in ten industry sectors. The top five (accounting for 74% of the investments) are: consumer products (29%); professional and business services (14%); health and medical devices (12%); software (11%); and, media and entertainment (8%).
In the UK, investment crowdfunding by non-accredited investors is legal. UK-based investment crowdfunding site, Crowdcube, highlights the industries that have received funding in an infographic The top five industry sectors include retail, food and drink, business and professional services, internet and technology.
Clearly, there is not a strong correlation between the distribution of funds among industries in angel investing and investment crowdfunding. There may be many explanations for this. One intriguing hypothesis may be that investment crowdfunding could eliminate a structural bias in traditional angel investing and bring attention to start-ups from a more diverse array of industries. Investment crowdfunding may offer start-ups, unable to gain access to investors in traditional avenues, the opportunity to share their story and secure funding from investors online.
It is too soon to tell what potential disruptive impact investment crowdfunding may have on angel investing. One hope is that it can open doors for start-ups, regardless of their industry, with good marketing potential, a brilliant idea, and strong team to secure funding from investors.