Angel group investors are often underappreciated when evaluating the health of an innovation ecosystem.
They lack visibility compared to large institutions and later-stage investors. There is also little consensus on the role angel groups should play in supporting innovative ecosystems — even if evidence shows they tend to boost startup performance.
When angel groups that do a lot of deals outside their own area share their experience and connections, it can help the local startup scene by connecting entrepreneurs to new markets, mentors and investors.
Past research has shown that, nationally, companies receiving early-stage angel funding were more likely to survive after four years and more likely to raise later venture rounds than non-angel-funded companies.
But what do we know about the performance of angel groups at the regional and city level?
Following Advancing Regional Innovation Economies’ recent research report, we can infer that strong ecosystems tend to have established angel support. According to its report, 60% of all formally recognized US angel groups could be found in their top 20 entrepreneurial ecosystems.
This analysis goes one step further, providing figures on angel group funding by region. It shows that angel group activity is heavily concentrated, but that certain regions are more locally focused. The findings should help guide ecosystem stakeholders who often lack verified angel group data.
Local vs. outside deals: Where angels invest shapes ecosystems
To bring some concrete analysis on angel group activity, I developed a dataset covering more than 1,500 pre-seed, seed and Series A deals made by 145 exclusively angel group investors. Data was sourced from Crunchbase, spanning 2019 to 2023.
Angel investing is notoriously difficult to track, as some deals take months or years before they’re entered into venture databases, hence the 2023 cutoff. It focuses on angel groups deemed “active,” having been involved in 10 or more total deals over the past ten years.
The top ecosystems come as no surprise. Angel groups based in Silicon Valley made the most deals, followed by New York City and Boston. Collectively, these three ecosystems represent half of all angel group deals in the dataset, and contain nearly 32% of all angel groups in the dataset.
This order also matches Startup Genome’s top three US startup ecosystems, demonstrating that the most active angel groups tend to cluster and benefit from the network effects of being embedded in established investor circles.
Unsurprisingly, there were also some notable absences from the top 10, like Washington, DC, (No. 8 in the Genome ranking) and San Diego (No. 9).
While this may reflect a genuine scarcity of local angel investment activity relative to the top ecosystems, it also demonstrates the challenges inherent in benchmarking angel investing.
Local angels may not be active in logging deals or tend to embed themselves in larger venture structures or accelerators. Operating as an exclusively early-stage angel group is a highly specialized investing arrangement and therefore more likely to cluster in the top ecosystems.
The first chart shows where angel groups are most active overall, but volume alone doesn’t tell us whether that activity is actually strengthening the local startup pipeline. To make that distinction, I calculated “hometown focus,” or the share of an ecosystem’s angel group deals that go to companies located in the same combined statistical area (CSA).
Denver leads the top 10 ecosystems in hometown early-stage deals, meaning the percentage of deals made in companies located within the Denver CSA. One can only speculate as to why Denver leads this category, as it may come down to the mission (or mandate) of each angel group or each member’s personal network.
Or, it could happen if a local industry generates an investor specialization, like across the country in Boston.
The life sciences industry, which Boston has become well known for, requires a level of investor patience, experience and institutional commitment unique to an ecosystem honed over decades. In Boston, 55% of angel groups’ local deals were in the life sciences field.
Numbers only tell a part of the story
Understanding why a certain ratio exists between local versus non-local deals requires firsthand research on the dynamics of each particular ecosystem. It may mean local angels are “crowded out” by other local funding sources, like grants, venture capital, accelerators and universities.
Sometimes, having people from different regions involved can bring valuable outside knowledge to local angel groups, especially if they’re working with well-established groups in places like Silicon Valley, which have shaped many of the field’s best practices.
When angel groups that do a lot of deals outside their own area share their experience and connections, it can help the local startup scene by connecting entrepreneurs to new markets, mentors and investors.
As the dataset also shows, the presence of active angel groups does not necessarily translate to robust early-stage support for local companies, as the motivations and expertise of those groups may diverge from local interests.
The only way to move forward and better understand the role of local angel groups in an ecosystem is to talk with these groups directly. Find out the true extent of their activity (as it may not be fully visible), and how their strategy is aligned (or not) with local strengths and interests.
