Angel investors pump $25 billion into startups annually. Who is the American Angel investor? The American Angel study by the Angel Capital Association (ACA) set out to answer that question by surveying 1,659 angels nationally, the largest such study ever conducted.

They asked the angels 40 quantitative questions and four qualitative ones then conducted empirical tests to ensure the quality of the results.

Among the findings:

  • Angel investors provide 90 percent of outside funding for startups, $25 billion to 70,000 companies annually.
  • Angels are more diverse than venture capitalists. Women make up 22 percent of angel investors.
  • White investors still predominate, accounting for 87.6 percent of angels. In the survey, 5.7 percent were Asian, 1.3 percent black, and 2.3 percent Hispanic.
  • The mean age of an angel making a first investment is 48.
  • The median angel investment check size is $25,000. It’s actually higher (at $36,920) in regions outside of California, New York, Boston and San Francisco (where it is $32,432).
  • Nearly two-thirds – 63 percent – of angel investors are based outside those major cities.
  • The median size of a first angel investment is $25,000.

In a webinar discussing the study results, Marianne Hudson, executive director of the ACA and an angel investor, noted, “Angel investors are critical to startups and the economy. It’s important to understand who we are and why we invest.”

Angel investors, the study says, invest in ten times the number of companies as venture capitalists, providing 90 percent of startup funding after friends and family investments. “We’re funding about 70,000 companies a year and VCs only about 8,000,” she said. Angels are also investing in the kinds of companies creating the most new jobs.

Angel investors have a nice balance of experience, with 20 percent of them investing for 18 or more years; 18 percent for 13-17 years; and more than a quarter of them (26 percent) new, investing for only three to four years.

The average angel investor portfolio size is 11.4. The ACA recommends a portfolio size of about 12 companies to minimize risk and maximize potential returns. Angels who have been investing longer have larger average portfolios of 14.2 companies.

Experience investors, Bolle said, “Invest more per round. You get more comfortable writing checks and have more opportunity to do follow-on investing.” The study found that on average, 33 percent of angels do follow-on investments, but 40 percent of more experienced investors do them.

An entrepreneurial background makes a difference

Elaine Bolle, of the Triangle’s RTP Capital Associates and a member of the ACA board, said the study disproves one of the myths about angel investors, that “Angels create entrepreneurs.” In fact, the study shows, entrepreneurs also create angel investors. In the survey, 55 percent of the angels were previously founders or CEOs of a startup. The same percentage, with cross-over, were executives at a for-profit company.

They are also, Bolle pointed out, “Disproportionally highly educated, curious people.” Nearly three-quarters (73 percent) have advanced degrees.

Background does make a difference, she said. “Angels with entrepreneurial backgrounds write larger checks, have more companies in their portfolios and take a more active, hands-on role with startups.” That tends to have a positive effect. The previous entrepreneurs turned angels have a greater percentage of positive exits (41.7 percent) vs. those without entrepreneurial experience (34.7 percent).

The average investment by an angel with an entrepreneurial background is $1,000 more than others at $38,960 vs. $28,127.

She added that as angel investing becomes a more “broad spectrum” activity, “We are getting more diverse backgrounds.”

More female angels are investing

Laura Huang of Harvard Business School, said the number of women investors is increasing. Almost a third of new angel investors (30 percent) are women. Huang notes that “Gender is an important criteria when females make investments, with 51 percent considering it very important vs. only 6 percent of men ranking it highly important.

Women angels also consider a startup’s social impact as important (33 percent of women say it’s highly important vs. 16 percent of male investors). Men tend to write larger checks, but a higher percentage of women (32 percent) than men (27 percent) make follow-on investments.

Angels are everywhere

You don’t have to be in one of the large metro areas such as San Francisco, Boston, or New York. There are angel groups in every state and 63 percent of those surveyed are from other geographies. The Southeast, for instance, accounts for 15.4 percent of the angels surveyed. California, of course, still has the lion’s share at 17 percent, followed by the Great Lakes region with 16 percent.

Check sizes actually tend to be larger outside the big metros, averaging $36,920 vs. $32,432.

“Angel investing is definitely a team sport,” Huang said during the webinar. “Where do angels find deals? Without good deals you can’t invest. Groups tend to be a primary source. Their are active groups in every state, which is good for both entrepreneurs and angels, because it means there are good deals within arms reach all over the country.”

Asked to predict future trends, most of the angels expect investment levels to either increase or stay about the same.