2020 Halo Report: Total angel investment up, but diversity sees decrease

Despite the pandemic and economic downturn of 2020, the amount of money invested by angel investors increased more than 6 percent over 2019, according to the 2020 Halo Report, an annual report on angel investments primarily within the United States released collaboratively by the Angel Resource Institute and Pitchbook. The report provides financial metrics on seed and Series A angel investments with key insights into regional differences, while offering an analysis on the demographic trends among the CEOs of companies at these stages.

In 2020, $4.62 billion was invested by angels into seed and Series A companies. Seed and pre-seed amounted for $2.84 billion of the total transactions while Series A amounted to $1.02 billion — the remainder of transactions were in unclear stages that precede Series B. This was an increase from 2019, which saw $4.33 billion in total angel investments with $2.5 billion in seed companies.

Over 21 percent of all deals were made in California — an increase of over 2 percentage points from 2019. Companies in the Southeast and Southwest continued on upwards trends in terms of percentage of deals in the U.S. Other regions remained largely consistent, save for New York, which saw a decline of 1.75 percentage points in total seed and Series A deals in the U.S.

Despite the growth seen in overall deals and variety within deal structures, diversity metrics among CEOs at the seed and Series A stages were down. The demographic makeup of CEOs of companies at these stages was more white and more male than in 2019 — a turnaround from the growth in diversity over the last few years. Although the disparity in the average pre-money valuation between businesses led by male CEOs and female CEOs at the seed stage dropped by over 30 percent, average pre-money valuations dropped for both demographics. Business at the seed stage led by female CEOs saw a drop in average pre-money valuation almost twice as much as male CEOs, and female CEOs of minority ethnic background trailed behind their white counterparts in metrics such as raised capital and round sizes. Further research must be conducted to assess the reasons behind this backtrack.

Across the US, the use of SAFE notes as a form of financing became increasingly popular. SAFE notes, similar to a convertible note, is a type of financing that allows investors to purchase equity in the company at a future-priced round. Deals financed with common stock and SAFE notes represented just under 8 percent of deals made in the U.S. in 2019. This rose to over 17 percent in 2020. California, which saw an uptick in the share of all deals made within the US, also saw an increase in the usage of SAFE notes for deal structures. In 2019, deal terms involving common stock and SAFE notes represented just under 10 percent of the deals made within California. This rose to almost 21 percent as of 2020 — with SAFE notes alone representing over 10 percent of deals. Due to the relative simplicity of this type of financing tied in with the appeal to founders of not having to surrender equity of their startup at an early stage, SAFE notes have become a popular avenue for founders within an unstable economy.

The data utilized in the 2020 Halo Report was obtained by the Angel Resource Institute from a survey of 2198 transactions between angel investors and companies with the assistance of Pitchbook. The full report can be accessed here: https://angelresourceinstitute.org/research-reports.php