2016 Halo Report: $3.5B invested, pre-money valuations down, syndicated deals up, inclusion is a work in progress

In collaboration with the Angel Capital Association and Pitchbook, the Angel Resource Institute (ARI) released its 2016 Annual Halo Report, which highlights several trends including a decrease in median pre-money valuation from 2015; an increase in the number of syndicated deals; and, data revealing the lack of angel investments in both female- and minority-led startups. ARI also found that convertible notes are becoming increasingly popular among angel investors for first-time investments in a company. In Texas, nearly 60 percent of all deals included a convertible note with many other regions/states reporting over 35 percent of deals including a convertible note.

The report includes data from 2,751 deals and over $3.5 billion invested in total rounds including co-investors. ARI, however, excluded deals with first-time investment rounds greater than $5 million to avoid skewing the data.

Valuations/deals

In 2016, the median pre-money valuation was approximately $3.7 million down from $4.6 million in 2015 – a 19.6 percent decrease. Since 2012, however, the median pre-money valuation has increased by 48 percent – up from $2.5 million. ARI finds the median funding round size was $950,000 with a median angel group investment of $127,000. ARI also found that the majority of deals (50.4 percent) were follow-on funding rounds to portfolio companies.

Syndication

While the median round size was $950,000, the median angel group investment was $127,000 indicating that there is a continuing trend of angel groups focusing on syndicating deals – an angel group partnering with other angel groups and/or venture funds, family offices, individual investors, and other platforms – to fund a deal. ARI researchers highlight this as an example of angel groups trying to reduce risk by reducing their exposure in one company as well as diversifying their portfolio of companies.

Inclusion

After analyzing 2,382 deals where the gender and race of the founder was verified, ARI researchers found a lack of diversity in angel capital deals, revealing that:

• 26 percent of deals were with companies led or founded by a minority male entrepreneur;
• 13 percent of deals were with companies led or founded by a white female entrepreneur; and,
• 3 percent of deals were with companies led or founded by a minority female entrepreneur.

ARI, however, found an encouraging result that pre-money valuation ($3.6 million) and round size of companies ($1 million) led by minority and female entrepreneurs were nearly identical to the national median for all angel deals.

Regional/state profiles

Similar to other findings within the venture capital industry, the 2016 Halo Report finds that a disproportionate amount of capital still flows to California with nearly 30 percent of all angel-capital deals going to companies headquartered in the state. In addition to the California profile, the report also includes profiles for seven regions and two states – New York and Texas. They include information on most active angel groups, deal structures, regional industries, valuation and investments sizes, and deals in regions.

The region with the highest percentage of deals funded by local angel groups was the Northeast region (Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont) with nearly 93 percent of deals in the region funded by angel investor groups based in the region. In other regions, the percentage of deals funded by angel investor groups based in the region ranged between 58 percent and 82 percent.