During the summer of 2010, I developed a workshop, A New ACEF Valuation Workshop for Angels and Entrepreneurs. To provide some reference points, I surveyed thirteen angels groups in North American to determine their recent experience in negotiating the pre-money valuation of pre-revenue companies. See the 2010 data reported here: Current Pre-money Valuations of Pre-revenue Companies.Because of the interest in the 2010 survey, I decided to survey a larger number of North American angel groups this summer (2011). I requested data from the leaders of 46 angel groups in 26 states (plus DC) and 2 provinces. Specifically, I asked each group leader for the current average or typical pre-money valuation of pre-revenue companies they are funding and the trend in valuation over the past year.
Thirty-five angel groups in 20 states and 2 provinces responded with the requested data. Seven groups in five additional states answered that they had insufficient data to reply – a total response rate of 91%. A table of replies can be found below.
|2011 Angel Group Valuation Survey|
|Pre-money Valuation of Pre-revenue Companies|
|Boise Angel Alliance||Boise||$0.8||up slightly|
|Fargo/Morehead Angels||Fargo, ND||$0.8||flat|
|Maple Leaf Angels||Toronto, ON||$1.0||flat|
|New Mexico Angels||Albuquerque||$1.3||up pressure|
|RAIN Funds||St. Paul, MN||$1.5||sl lower|
|Tech Coast Angels||San Diego||$1.5||flat to down|
|Valley Angels||Grand Forks, ND||$1.5||flat|
|Vancouver Angels||Vancouver, BC||$1.5||decreasing|
|Angel Forum||Vancouver, BC||$1.6||decreasing|
|Atlanta Tech Angels||Atlanta||$1.6||sl down|
|Queen City Angels||Cincinnati||$1.8||flat|
|SeedStep Angels||OKC||$1.9||flat to up|
|Mid-Atlantic Angel Group||Philadelphia||$2.0||unchanged|
|DC Dinner Clubs||DC/Virginia||$2.0||up slightly|
|Sierra Angels||Incline Village, NV||$2.0||flat|
|St. Louis Arch Angels||St. Louis||$2.0||unchanged|
|Wilmington Investor Network||Wilmington, NC||$2.0||down 10%|
|Golden Angels||Milwaukee||$2.3||up slightly|
|Alliance of Angels||Seattle||$2.5||flat|
|Hub Angels||Boston||$2.5||up pressure|
|Sand Hill Angels||Silicon Valley||$2.5||up ~ 20%/yr|
|Virginia Active Angels||Charlottesville, VA||$2.5||declining|
|Golden Seeds||NYC||$2.9||down 10%|
|Central Texas Angel Network||Austin||$3.0||up|
|S. Valley Angel Fund||ND||$3.1||flat|
|Life Science Angels||Silicon Valley||$3.3||flat|
|Blue Tree Angels||Pittsburgh||$3.3||increasing|
|Band of Angels||Silicon Valley||$3.4||up|
|AVERAGE||$2.1||Bill Payne October 2011|
Before providing any analysis, all involved would agree that this is simply a survey and no statistical significance should be applied to this report.
The average pre-money valuation of the 35 responding angel groups was $2.1 million. Two-thirds of the groups reported pre-money valuations between $1.5 million and $2.5 million. Fourteen groups reported that the trend in valuation is flat, while twelve reported higher valuations and nine suggested the trend in valuation was down.
Here is a summary comparison of the 2011 results to last year’s survey of only 13 groups:
- The average valuation increased from $1.7 million to $2.1 million
- The reported results ranged from $1.25 million to $2.7 million in 2010 while the range is broader in 2011, from $0.8 million to $3.4 million.
- Groups that provided data in both years showed that valuations of pre-revenue deals are increasing, quite significantly in some regions.
I’ve been asked by many why valuation varies so much from group to group. In this 2011 survey, ten groups reported average valuation of $1.5 million or lower while seven groups reported valuation of double that or more. Speaking with many angel leaders, I believe we have identified several possible explanations for group-to-group variations:
1) Clearly, startup ventures in some business verticals command high pre-money valuations that others. Biotech, life science and medical devices are usually funded at higher pre-money valuations than, say, software and Internet companies. Groups focused on the life science sector, as an example, will likely fund deals at higher valuations than those funding a broader set of deals.
2) Competition for deals in regions, such as Silicon Valley, New York City and Boston, has resulted in higher and, in many cases, rising valuation. Here is the data for the eight groups in these three areas:
(a) Boston (3 groups) – $2.5 million
(b) New York (2 groups) – $2.9 million
(c) Silicon Valley (3 groups) – $3.1 million
These eight groups all reported typical valuations in the highest 40% of all groups reporting. We have heard that Super Angels (many in these three areas) do not negotiate valuation as rigorously as do angel groups. Some Super Angels have been quoted as suggesting that valuation is not particularly important to their strategy. They intend to invest in as many as 100 companies quickly, looking for the next Facebook or Groupon.
3) Some groups invest $2 million or more in pre-revenue companies, while others typically invest less than $500,000 in these very early stage ventures. Since angel groups prefer purchasing less than majority ownership in these early rounds, a higher pre-money valuation is more likely for larger pre-revenue round size. This trend is particularly applicable to angel groups who syndicate seed/startup stage deals with a large number of angel groups and seed VCs in their region. Syndication among angel groups is a real advantage when larger round size is required (at any stage) but can increase the valuation in early rounds.
4) Finally, a few groups reported that entrepreneurs and their advisors were very aggressively negotiating high valuations based on reports from the national press (stories from Silicon Valley and New York) when no local competition for such deals exists. In some cases, this resulted in deals done at higher valuations than anticipated by local angels.
At a final disclaimer, this report is simply a survey of angel leaders in North America. No statistical significance should be assumed from any data included here. Finally, all analysis and conclusions are those of the author. Any errors or misinterpretations are his.
Those interested in more information or in participating in the 2012 survey (if any) should contact the author by email at email@example.com.
All opinions expressed are those of the author, and do not necessarily represent those of Gust.