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Published in Finance

Report: 2021 angel investing neared or exceeded pre-pandemic levels

BY Wednesday, May 04, 2022 01:43pm

Angel investing in Michigan rebounded well in 2021 as the amount invested neared — and deal flow exceeded — pre-pandemic levels.

Angel investors put $69.1 million into 111 Michigan-based companies last year, an amount and deal flow that well exceeds the $50 million invested in 102 deals in 2020.

“We had a great rebound year coming back from 2020, which was a down year as you might expect with the pandemic,” said Mike Flanagan, vice president for capital programs at Ann Arbor SPARK that annually produces a report highlighting angel investing in Michigan.

“The numbers across the board were up,” Flanagan added. “We had great activity throughout the state, as we have had the last five years.”

The 2021 deal flow also exceeded the 102 Michigan companies that angel investors backed in 2019, the year before the COVID-19 pandemic began. However, the amount invested last year was still below the $74 million that angels invested in 2019.

The 111 Michigan companies that angel investors funded in 2021 went on to raise a total of $287.5 million in capital and collectively employ nearly 1,700 people, according to the Ann Arbor SPARK report.

In West Michigan, angel investing in 2021 totaled $16.4 million across 17 deals. The companies that received funding leveraged the angel investments to attract a total of $113.1 million in total capital and provide 325 jobs.

Eighteen of the 111 companies that angel investors supported in 2021 were spun out from universities, an indication that “our universities are creating a lot of innovation that is driving the growth in this space,” Flanagan said.

Angel investing deal flow in the first quarter of 2022 in Michigan appears to have “dipped a bit,” although Flanagan believes activity will match or exceed 2021 levels.

“I expect that to rebound completely and I would expect us to see angel investing this year at least on par versus last year. Hopefully it just keeps getting better because we’re seeing momentum in Michigan,” he said.

‘We’ve come a long way’

The Michigan Angel Community annual report provides a look at the state of angel investing in Michigan, which at the end of 2021 had 16 active angel groups with nearly 700 members combined, an increase of 100 from 2020.

In a webinar this week presenting the data, Flanagan recalled how the state was home to just four or five angel groups as recently as the late 2000s.

“We’ve come a long way in the last 10 or 15 years in terms of angel investment in the state, and it’s throughout the state,” he said. “There are groups everywhere now. If you’re an entrepreneur, you can find capital almost anywhere.”

The 2021 Michigan Angel Community annual report shows that angel investing in Michigan has grown significantly over five years from the 70 deals recorded in 2017 for $42 million.

The number of angel investors — either individually or as part of a group — investing in Michigan-based companies nearly doubled over five years from 797 in 2017 to 1,578 in 2021.

Despite the steady growth in the number of angel investors over the years, Ann Arbor SPARK’s Skip Simms believes many more people in Michigan meet the federal definition for an accredited investor and can become angels.

“There’s still a lot of wealth in the state of Michigan that’s not participating in supporting our startups,” said Simms, senior vice president of the Ann Arbor economic development organization and a longtime angel investing advocate. “We need to tap into those resources to more aggressively scale the startup ecosystem in our state and get our entrepreneurs up and running with successful businesses.”

Angel investments in Michigan also have become increasingly diversified over the years.

In 2021, 37 percent of the Michigan companies funded were owned by minorities, a large increase from the 6 percent in 2017, according to the Michigan Angel Community report.

One in five angel investments in 2021 went to Michigan companies owned by women, up from 14 percent in 2017, although down by two percentage points from 2020 and 2019.

“The trendline is good over the last five years,” Flanagan said. “It’s clear we still have work to do in this space, but we’re seeing progress.”

Following a trend of recent years, the information technology sector accounted for the largest number of angel deals last year with 53 investments. Nine out of 10 deals in the I.T. sector went to software companies.

The life sciences sector was second in deal flow with 34 investments in biotechnology, medical device, diagnostics and pharmaceutical startups. The remaining investments were split between advanced materials and manufacturing, mobility, and consumer products.

Life sciences companies received the largest share of funding at $31.8 million, or 46 percent of all angel investments in Michigan last year. I.T. was second at $28.2 million.

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