Raising capital is a major milestone for early-stage startups, but for founders who are new to the process, understanding the best avenues to pursue can be challenging. While venture capitalists (VCs) often dominate the media narrative, the reality is that first-time capital is more accessible through angel investors. According to the 2023 Angel Funders Report, angel investors are the leading players in early-stage funding, primarily investing in Seed and Series A rounds, and maintaining consistency even amidst economic fluctuations.
Why Angel Investors Lead in Seed and Early-Stage Funding
One of the most compelling takeaways from the 2023 report is that angel investors have a firm foothold in Seed-stage investments. In 2022, angel investors directed 63% of their investments toward Seed rounds, with an additional 20% going to Series A. This trend has remained consistent over the past four years, underscoring that angel investors are highly dedicated to fueling early-stage companies, unlike VCs who typically enter at later stages when businesses are already generating revenue or showing significant traction.
Despite economic challenges and shifts in the investment landscape, angel investors didn’t shy away from Seed funding. Rather than moving their capital to safer, later-stage investments, they continued supporting early-stage companies. This resilience is a testament to angel investors’ commitment to nurturing innovation at its earliest stages, filling a crucial funding gap that many VCs are less inclined to address.
Investment Amounts: A Snapshot of Seed and Series A Rounds
The average angel investment in Seed rounds in 2022 was approximately $121,000, which increased to $157,000 in Series A. Although angel investors participate in Series B and beyond, their average check size remains more modest than what a startup might expect from a VC at these later stages. In Series B rounds, the average angel investment reached $169,000 and $215,000 in Series C+ rounds.
These figures reflect the reality that while angels support early growth, they don’t match the larger checks often associated with VCs in later rounds. For first-time founders, this highlights the importance of aligning fundraising expectations with angel investors when pursuing Seed or Series A rounds, as their capital can support the early journey without overcapitalizing.
Growing Prevalence of Smaller Funding Rounds
Another interesting trend is the increase in the frequency of smaller angel rounds. Between 2019 and 2022, there was a noticeable rise in rounds below $1 million and an even more significant increase in rounds between $1 million and $2.5 million, up to 36% in 2022 from 22% the previous year. This shift aligns with the trends observed in VC rounds, where smaller round sizes became more common, likely due to the broader economic landscape.
The willingness of angel groups to write larger checks (sometimes exceeding $1 million) has also become more prominent since 2019. However, in 2022, these investments tended to stay below the $2.5 million mark, reflecting a conservative yet significant capital influx that can support a startup’s growth without the level of dilution or oversight that often comes with VC investment.
How Angel Investing Compares to Venture Capital
The VC ecosystem operates differently, with most VCs traditionally focusing on Series A or later rounds. While some VCs are starting to explore Seed-stage investing, their presence is still minimal compared to angel investors. VCs also tend to take a more risk-averse approach, with strict benchmarks and a preference for companies with proven traction. This makes angel investors a more accessible source of capital for startups with early promise but limited financial history.
Moreover, angel investors tend to have a more hands-on, mentorship-oriented approach. They often bring industry expertise, networks, and a genuine desire to help founders succeed. For new founders, this type of support can be invaluable, as angel investors frequently offer guidance that goes beyond the financial investment, helping shape the company’s direction in its critical early stages.
The Case for Angels as Your First Investor
For founders raising capital for the first time, the 2023 Angel Funders Report underscores that angel investors are the go-to for early-stage funding. They offer a reliable source of Seed and Series A capital, provide mentorship and industry insights, and are committed to early-stage companies regardless of economic turbulence. While VCs remain essential for larger, later-stage investments, the data makes it clear that when you’re starting out, angels are more likely to take the initial leap with you.
If you’re a founder ready to launch or grow your company, consider focusing your efforts on building relationships with angel investors. Their commitment to early-stage funding, even amid economic fluctuations, offers a dependable pathway to securing the capital you need to turn your vision into reality.
Looking for angel investors to invest in your startup? Check out this angel investor directory by Angel Capital Association.
Source: 2023 Angel Funders Report — https://publuu.com/flip-book/37288/751879/page/12 and https://publuu.com/flip-book/37288/751879/page/14
