The importance of private investors and business angels for the financing of young companies has increased significantly in recent years, as one new representative study by the Leibniz Centre for European Economic Research (ZEW) for the startup cohorts 2015-2018.
According to a recent ZEW study, 3,920 high-tech companies received financing from business angels between 2015 and 2018. Including non-high-tech companies, the number rose to 27,890 over the four years.
The proportion of young high-tech companies receiving financing from business angels is 9.9 percent, nearly double the 5.1 percent reported in the last comparable ZEW study from 2013 (founded between 2009 and 2012). The investment amounts provided by business angels have also multiplied. On average, one or, in some cases, several angels invest €358,000 in a young company, compared to €120,000 in the 2013 study. The total amount of capital provided annually by business angels averaged €2.465 billion between 2015 and 2018, compared to €663 million in 2013, which is also almost four times higher.
Business angel with two wings
The study also points out that most companies (73 percent) with private investor financing receive not only financial but also additional support from their private investors, thus identifying themselves as true business angels with two wings.
The proportion of young companies that receive financing from venture capital firms is significantly lower at 0.9 percent compared to the group that receives funds from private investors
(7.5 percent). However, VC firms finance significantly higher volumes than private investors. The average VC investment per company for companies founded between 2015 and 2018 is €592,000 (compared to €290,000 for private investor investments). However, this difference has shrunk compared to the comparable period of 2009 and 2012, as the investment amounts by VC firms have actually decreased (at that time, average VC investment per company was €1.143 million, compared to €83,000 for average private investor investment per company).
Business angels outperform VC investments
The total amount of annual VC investments was €613 million, compared to €590 million in 2013. Business angels alone (excluding other private investors) invested €2.465 billion annually, almost four times the amount of VCs. Statistics from the German Private Equity and Venture Capital Association (BVK), which cover more than four cohorts of startups and also include later-stage companies, show a total of €1.740 billion in VC investments in 570 companies in 2019, including €128 million in the seed phase and €1.043 billion in the startup phase.
When reading the ZEW study It should be noted that this distinguishes between business angels and private investors and also makes a distinction between Investors who are classified as 'family and friends'. The figures for the entire private investor sector therefore significantly exceed those for business angels.
