Respectfully, I disagree.  Here’s why.

• There are about 300 angel groups in the United States at present.
• The largest angel group in the United States is currently Tech Coast Angels.
• Tech Coast Angels normally invest in about 10-12 new deals per year.
• Assuming 300 angel groups each invested in 12 new deals per year, they would fund about 3,600 deals per year in total.
• 57,225 companies received funding from angel investors in 2009, including follow-on investments.
• Based on these numbers, angel groups funded less than 10% of all angel deals in 2009.
• Angel groups are easy to find.  I’ve encountered people offering to sell lists of angel groups.  What a crock!  You can find the biggest and best list of them here for free.
• Because angel groups are so easy to find, they are often inundated with business plans from entrepreneurs clamoring for attention.  What happens when the demand for capital far outpaces investor supply?  Investors get a lot pickier.  Is this the perfect environment for an entrepreneur?

Solo angels and informal investors represent a far better funding opportunity for most startup and early stage companies.   Here’s the story the numbers tell.

• There were nearly 260,000 active angel investors in the U.S. in 2009.  An estimated 20,000 angel investors are part of organized angel groups, leaving a total of 240,000 solo angels. These solo angels were responsible for more than 90% of all angel deals funded in 2009, with an estimated total investment of more than $15 billion.
• Informal investors (including friends, family, and associates) invested in more than 4,000,000 deals in 2009.  They provided more than $70 billion in small business funding in 2009.

You can draw your own conclusions from these numbers; the math is pretty straightforward.

All that being said, raising money from solo angels and informal investors takes time, lots of work, and persistence to succeed.  Some professional guidance won’t hurt either!

Here’s what I mean.

High profile angel investors and venture capitalists are focused on high growth businesses, those that can grow to $30-100 million within a few years.  This is not necessarily based on greed, but more often on the realities of the financial world where they operate.  They have compelling reasons for this focus.  And so for the most part, they ignore smaller companies.

There were about 600,000 new businesses with employees that started in 2009 in the U.S.  Angel investors funded some 13,000 start-up deals, and venture capitalists funded 312.  Statistically, angels funded 2 percent of the new companies, and venture capitalists a tiny fraction of 1 percent.  The SBA reports that nearly 70 percent of start-ups survive at least 2 years, and more than half survive for 5 years. One other statistic of interest is that the average person born in the later years of the baby boom era held 10.8 jobs from age 18 to age 42, according to the U.S. Department of Labor.  This equates to changing jobs every 2.2 years on average.

From these numbers, we can conclude that your odds of starting a business that succeeds on some level for at least 5 years are better than staying with the same employer for 5 years.  While many millions of people do stay at their jobs more than 5 years, most don’t.

So how successful are those businesses that survive?  According to the IRS, 81 percent have net income of less than $1 million per year, 16 percent have income from $1 million to $10 million, and just 3 percent have income of more than $10 million.  By the way, only 0.5% have income greater than $50 million annually.

One other statistic is useful to consider.  Of all the small business funding provided during 2009 – a year of economic turmoil – just 7 percent came from angel investors and venture capitalists.  All the other small business funding came from somewhere else.

Most small businesses, whether start-up or well established, will never receive a nickel from sophisticated angel investors or venture capitalists.  Yet there are more than 5 million households in the U.S. that have a net worth of more than $1 million.  Most did not inherit their wealth – they earned it from their own business or by being a successful executive for a major company. Small business owners have a much higher probability of success in this world than in the realm where angel investors and venture capitalists live, all due respect to those at the top of the food chain.

And so while we aspiring entrepreneurs can learn much from angel investors and venture capitalists about getting funded, we should remember that 93 percent of small business funding comes from somewhere else.  Somewhere that shares key viewpoints of high profile investors, but also takes many other issues into account.  Things that are often more favorable to you.

Learning to successfully navigate in the world of the 93 percent offers your best chance for success in funding your company.

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