Andrew Kazlow: [00:00:00] Welcome to the Diligent Observer, where we help angel investors see what most miss. I'm your host, Andrew, and every week we explore what works, what doesn't, and why through conversations with experienced startup investors and operators.

Welcome to a special episode of the Diligent Observer Podcast. I'm your host, Andrew, and today I'm excited to break down an analysis that we recently published called Angel Network Pulse: The First 101. Uh, this is an analysis that my team and I did on 101 Angel Network investments that we covered over the last nine months through the diligent observer.

Newsletter, uh, the report was just released and I am super excited to share some of the takeaways that stood out to me as we went through this analysis. I was super curious, sitting down to do this, what patterns would emerge from looking at 101 deals, 72 angel networks, 15 countries. [00:01:00] Uh, and so very excited to share some takeaways today.

Uh, this report was produced in partnership with the Angel Capital Association. So if you're not familiar with the ACA, uh, they are the primary convening organization that supports the angel network ecosystem. Uh, they produce fantastic educational resources and there's actually a special code for Diligent Observer readers and listeners, to be able to access some complimentary educational tooling through the ACA.

So, if you're interested in that, check out the link in the show notes. Um, and today I'm gonna be breaking down some key findings from the analysis, I won't be able to get into everything. Um, but I'll, I will share some extra color that you won't see just reading through the report. So, it should be a quick episode and I am excited to jump in.

Okay, so starting out, let's go over some of the key top line numbers, key findings. Uh, like I mentioned, we had 101 deals that were included in this analysis, uh, those deals encompassed [00:02:00] 72 networks. So, there were 72 angel groups that participated in those 101 deals. Uh, these deals were located across 15 countries.

What was announced was about $288 million in funding raised. Now a key caveat is that only about 53% of the deals that we covered actually published target funding amounts. The other 47% didn't spec specifically indicate how much they would be raising. So, that's probably about half of the actual number, which is likely closer to half a billion dollars in total funding sought from these startups.

My estimate is that the deals that we covered in this 101 report represent about 8% to 10% of the overall angel network investment activity each year, that is based on the fact that the Angel Capital Association's, annual [00:03:00] Angel Funders report tracks anywhere from like 1200 to 1500 deals a year.

Um, sometimes more, sometimes less. But if we're pulling a hundred deals in this analysis, you know, that's about 10%, let's say, of the total kinda annual activity. Okay, so some key findings.

The first takeaway stood out to me very obviously after doing this analysis was that Texas is crazy when it comes to organized angel investing outta the 72 groups that we tracked in this report, 10 of them were based out of Texas, and those 10 were together responsible for 22 investments. Now, that's a different stat than deals.

Uh, a deal is one company, one deal. Each deal can receive investment from multiple investor communities. For example, we had six or seven companies, six or seven deals that received investment from more than one [00:04:00] angel group. So we, we track this a little bit differently. Each of those is called out specifically in the analysis.

But point here is that Texas was wild. Uh, most active state by investment by far. Now, that was at first really surprising to me because I would have expected California or New York, you know, one of the more well-known startup hubs to be that leading, uh, region. Um, but I think there's a few reasons for this.

I was actually chatting with somebody on LinkedIn about this right after we posted the analysis. Uh, I, I don't, I don't think this is indicative of the actual structure in the ecosystem. Um, what it seems to me is that Texas angel communities tend to be more forward about publicly announcing the deals that they're participating in.

And so as a result, we're able to pick those up more easily. Another piece as to why this is probably the case is that I am physically based in Texas and I know these [00:05:00] communities better personally. So it's, it's likely that my team and I are picking up and seeing their activity more readily as a result of that.

So, I expect that this will likely shift over time, but it was interesting to observe. The Texas was, you know, so well represented in this analysis. Uh, the report breaks down the full geographic structure of all of this. Total of 30 states represented 15 countries. Pretty cool. So, check it out if you want more detail, but the key kind geographic takeaway for me was the Texas is is wild.

 Another interesting finding is that angel groups tend to invest cross border. Uh, many do focus locally, and that's where I've found many angel communities start, right? They originate with a focus on their local region, and those investments still likely take precedent. But in our analysis, we found that angel groups were based in 27 states and 12 [00:06:00] countries.

But the startups that received investment were based in 30 states and 15 countries. So, we had some expansion beyond borders there. And the takeaway for me was that angel groups are not as a whole limited by geography, even though that's likely a core focus for them. Another interesting finding is that healthcare was at the top.

Uh, about 34% of the deals we tracked were in the healthcare space and connected to that AI integration and AI messaging was present in almost every sector. So, 64% of the deals that we highlighted had clear enough AI forward messaging in their, uh, marketing content and in their deal announcements that our descriptions ended up including that AI reference as well.

And so, key point there is that AI is everywhere, and I think it's likely far higher than 70 or the, the 64% that we [00:07:00] actually observed. Uh, but that was an interesting takeaway. And these, none of these are, well, many of these are not exclusively AI companies, but it's more of an AI infrastructure approach.

And so we saw that across industries. We tracked a total of 18 sub-sectors and we grouped those into five core industry spaces of which healthcare and life sciences was the, the leader by far. So, fourth interesting finding was around check sizes. So, small side note, most announcements, most angel network investment announcements don't actually indicate the total investment size. So, to this stands, I think in contrast to many venture investments where a lot of the stuff I'm seeing on StrictlyVC or other VC announcement platforms, VCs tend to lead with, here's how much was invested.

You know, leading this round with a blank investment, far less common for angel groups. Most of these investment announcements [00:08:00] did not actually specify how much the angel community invested. Uh, a lot of reasons that that is the case. Uh, but that was an interesting observation. The data around that is only 17% of the 101 deals actually specified how much the angel community invested.

Uh, in contrast, 53% of these disclosures highlighted the total size of the funding round. So, for example, angel community members invested in this company who is raising this amount, that would be far more common in our data set. So, some of the numbers I'm about to share are limited by the rate at which those data points were disclosed, but still interesting.

Okay. That aside explained, what we found from the deals that did disclose investment sizes is that they were on average about $329,000. Was kinda the collective check size that an angel group wrote. Median was a little bit [00:09:00] lower at $180K, but if we just look at the average, that represents about 7% of the average round size, which was $4.7 million.

So, a lot of seed rounds, series A rounds pulling that average up. Um, but the point kinda the takeaway here is that 7% of A round, 330 grand like that is a meaningful check. And so, I found that interesting to see that, you know, angels aren't leading, at least in our data, but they are providing a meaningful contribution to the overall round that a founder is moving through.

Okay. Next thing I wanna share is a few behind the scenes nuggets, uh, into putting together a report like this. These didn't make it into the analysis itself, but I thought it might be fun to share. So, first I wanna start with a couple things that made this actually pretty difficult to put together the report isn't all that long. But what was really difficult about this kind of analysis is [00:10:00] getting accurate information on 173 organizations.

So 72 Angel groups, 101 companies, trying to pull all that together and make sure that it's correct was incredibly time consuming for, for me and my team. Just double checking things endlessly, definitely making mistakes. So, if anybody's listening to this or reads the report and goes, Hey, that that was, that's not right.

Can, can you guys adjust that? The answer is yes, please, uh, contact us. We'd love to update the analysis to make sure that it's accurately reflecting what's happening in the world. Which leads me to my next point. What was interesting is that the startups and angel communities featured here evolve so fast.

So, an example is one of the companies featured in the report actually totally changed their name between when we featured the deal originally through the newsletter and when we released this report. So, just in that nine month period, I think this deal was somewhere in the middle there. So, just within a few months of us featuring them and publishing the report company had changed their name, totally rebranded.

And [00:11:00] so, we had to update everything kinda mid project, to match that, which was really. Uh, you know, unexpected. Another company, I think closed down or totally changed directions, so we had to make some adjustments there to make sure we were accurately representing their activity. So, uh, the point here is that these startups are rapidly developing, changing, and that was one of the things that was unexpectedly difficult about putting this analysis together.

I think this also highlights the importance of speed in even communicating what's happening in the ecosystem, and this is why I, I get so excited about the fact that we're tracking this activity weekly, so every week through the newsletter we're publishing. Here's some more, some recent angel network investments to know about, because in three months those deals might look totally different.

They could be onto a different round. They could exit, they could, anything could change. And so this live tracking is super important. We actually track and organize all of this through a publicly [00:12:00] available, uh, database that anybody can access. We'll put the link in the show notes. Uh, but if you're curious what's happening in the angel ecosystem, um, just staying up to date and timely is, is super important.

And so we're excited to be a part of helping people have a sense for what's happening in this, what is often, fairly reserved and, and inaccessible space for many. 

Final thoughts, organized angel investing is rapidly growing and I'm really excited about where this ecosystem is headed. Angel investing in community is a fairly recent concept. The very first that I'm aware of, very first angel group was Band of Angels, formed in about 1995 in California. Still in operation today.

Fantastic community. Angel investing in an organized fashion is only about 30 years old, and so what's exciting to me is to see all the reflections of how this has developed [00:13:00] across the country and across the world. Right? 15 countries represented at 12 countries where angel groups were located like angel investing in an organized fashion is something that is growing and is providing a really weighty impact in the ecosystem. 7% of the average funding round. 330 grand like that is material and this contribution from individuals who are adding value through their personal networks, personal support. It's just so different from the capital that is received through venture, uh, private equity or anywhere else in the venture kind of capital stack.

And so angels while different from any other source of capital, I think in the right use case, can and are a meaningful support for entrepreneurship, for innovation, and for the growth of our economy. And so thrilled to be able to just scratch the surface of what's, what's happening in the angel ecosystem.

I can't cover a lot of the details [00:14:00] here in this breakdown, but wanted to at least share some thoughts for more, you can check out link in the show notes, or you can just go to thediligentobserver.com/c/101. That's the letter c, forward slash 101 to get access to the full reports.

It's gonna include a full infographic, a bunch of charts, all the, all the profiles for each of the companies and angel groups that are featured. A breakdown on the, the regions, the sectors, uh, and then even as a bonus, I'll send you my five rules of angel investing, uh, if you subscribe and access the, the report.

So check it out. Thanks for listening, and thanks again to the Angel Capital Association for presenting this analysis in partnership with The Diligent Observer.

Speaker: Thanks for listening to this episode of The Diligent Observer. I'm your host, Andrew, and if you're an angel investor looking for essential angel intel in five minutes every week, I think you'd enjoy my newsletter. I send my best stuff, interesting deals, and more straight to your inbox so you [00:15:00] never miss a thing.

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