“The almost doubling of the number of high-tech companies financed by business angels compared to the results of the last ZEW study (2013) shows the dynamism of the German business angel market.”
During the years 2015-2018, 3,920 high-tech companies, i.e. almost 1,000 per year, received financing from business angels. When you include the non-high-tech companies, 27,890 companies received funding over the four years. The share of young high-tech companies financed by business angels is 9.9 % and has almost doubled compared to 5.1 % in the last comparable ZEW study from 2013 (founding years 2009-2012).
The investment sums provided by business angels have also multiplied significantly. On average, angels (one or several) invest €358,000 in a startup, compared to €120,000 in the 2013 study. The total amount of capital provided by Business Angels annually was €2.465 billion on average for the years 2015-2018 compared to €663 million Euros in 2013 - four times as much.
The report shows that business angels have their two wings: 73% of companies receiving private investor funding also receive non-financial support.
The number of private investors in Germany is now estimated at 7,100 to 14,100. In 2013, the estimate was between 6,300 and 9,000. The threshold of 10,000 Angels in Germany should therefore be clearly exceeded, especially as there are an additional 34,800 private investors who are part of the "family and friends circle" of the company founders.
The quota of female angels involved is higher than many people assumed. For 16 % of the companies they are the sole investors, and for 13 % together with male colleagues.
The role of government programmes
This is the first time since the introduction of the "INVEST" funding scheme that data on its use are available.
It is clear that it has considerably stimulated the private investor market. In a good 28% of the high-tech companies financed by a private investor in the 2015-2018 start-up years, at least one of the private investors was supported by INVEST.
It should be noted that not all forms of financing are also eligible for INVEST funding. Looking only at the high-tech firms financed by private investors with a form of financing eligible for INVEST (open equity and convertible loans), the share is as high as 44%.
Private investors with a INVEST contribution also invest larger sums in enterprises than investors who were not supported by INVEST. The average sum of financing by INVEST-supported investors is €998,000, while the average sum of financing by private investors without INVEST support is €844,000.
At 0.9%, the share of young companies receiving financing from venture capital companies is significantly lower than the group receiving funds from private investors (7,5 %).
However, VC companies finance significantly higher volumes than private investors. The average VC investment per company for the 2015-2018 founding cohorts is €592,000 (compared to €290,000 for private investors).
This difference in level has, however, shrunk compared to the same period of 2009-2012, as the amounts invested by VC companies have actually decreased (at that time, the average VC investment was €1.143 million per company,€ 83,000 average per private investor investment per company). The total amount of annual VC investments was €613 million, up from €590 million in 2013.
Business angels alone (excluding other private investors) have thus invested almost four times as much as VCs, which stands €2.465 billion per year. The statistics of the German Private Equity and Venture Capital Association (BVK), which covers more than four years of foundation and also includes later stages, show total VC investments in 570 companies in 2019 amounting to €1.740 billion, of which seed phase €128 million and start-up phase €1.043 billion.
When reading the ZEW study, it should be noted that it distinguishes between business angels and private investors and additionally makes a distinction to investors classified as family and friends. The figures for the whole area of private investors therefore clearly exceed those for business angels.
Some extra background: for the third time after 2007 and 2013, the ZEW, with the financial support of the Federal Ministry of Economics, has dedicated itself to the little-researched private investor market and conducted a representative survey of young companies of the founding years 2015-2018 according to their private investors.
Further information (in German) and the link to the study can be found here.
(Written with our member Business Angels Netzwerken Deutschland)