The Sacramento Angels were the most active angel investment group in California in 2021, according to a recent report.
The Halo Report is an annual survey of angel investing put together by the Angel Resource Institute and PitchBook, a database of private equity and venture capital investment. It found the Sacramento Angels to be the third-most-active angel investment group in the entire country.
“We weren’t even trying,” said Dave Sanders, longtime member of the Sacramento Angels and founding member and managing partner of executive search firm WorldBridge Partners LLC.
The companies that Angels invested into were about 70% female- or minority-led businesses, Sanders said. “And that was without trying, too.”
Angel investors seek to buy equity in fast-growing startups with potential to generate revenue of $60 million to $100 million within the span of four or five years.
The Sacramento Angels had 19 fundings in 2021, said John Peters, chairman and president of the group. That was up from 17 the year earlier.
About 20% of those investments are into locally based companies, Sanders said. "We always give preference to local companies."
The Sacramento Angels aren't limited by industry and geography. They are looking for good companies to invest into, Sanders said.
“We have found that if we don’t give good returns to our investors, they don’t reinvest,” he said.
The Sacramento Angels tend to make investments averaging about $125,000, with deals ranging from $75,000 to $500,000 per investment. Those investments tend to be seed rounds and sometimes follow-on investments, Peters said.
The Sacramento Angels are getting more looks at companies because the group has become more active, and thus is more attractive to companies seeking investment.
And the group has grown. It started in 2000 and had about 40 members for a long time. In 2020, it grew to over 60 members and last year rose to nearly 80 members, Peters said. Those members also bring in deal flow and connections because the individual members have connections with other angel investing groups, Sanders said.
The group at the end of 2018 changed into a multiclass limited liability corporation, a structure that simplifies record-keeping, investing and taxes. That structure also allows groups of investors to invest as one, which lowers risk by diversification. Rather than putting $70,000 into one company, they can put $10,000 into seven companies.
Sacramento Angels were the third-most-active angel fund in the country in 2021, behind the Keiretsu Forum in Seattle and Golden Seeds in New York, according to the report.
All angel investors must be accredited investors, as defined by the Securities and Exchange Commission. That means they must have a net worth in excess of $1 million or annual income of more than $200,000 for at least two years running. The standard is meant to ensure that investors can withstand the complete loss of their investment.
Angels are taking big risks by investing in the very early stage of a company’s development in return for a significant piece of equity. The angels only get a return if they are replaced by other investors or if the company is sold or goes public. Those types of exits can be many years in the making.
