VentureSouth vs The Angel Investment Market

Released in late August, the Angel Funders Report from the Angel Capital Association – which you can learn about on the Venture in the South podcast episodes with John Harbison here, and Paul and David here – provides the latest insights into the angel investment market.

We thought it might be interesting (to someone) to see how VentureSouth aligns with, and sometimes differs from, the market. So, here’s today’s bloggy analysis – VentureSouth vs the Angel Investment Market.

Overall investment activity:

The market: invested dollars down -33% in 2023, down another 6% in 2024; total dollars per group fell 16%, from $4.4M to $3.7M; deals per group fell 10%, from 17.5 to 15.8. (Smarter folk than me will have to figure out how those numbers can be simultaneously true!)
VentureSouth: VentureSouth members and sidecar fund invested +28% more in 2024 compared to 2023. This was from both more investments (37 vs 33, up 12%) and more dollars per investment (up 14%).
VentureSouth is a larger-than-average group (the #8 in North America by activity, in case you didn’t know!) and directly exposed to these market trends. We have definitely seen hesitation about investing since the 2021 over-exuberance. Nevertheless, we continue to focus on finding the best deals to invest in outside of these national trends – and in 2024 were able to grow activity healthily despite the wider market hesitancy.

New vs follow-on rounds:

The market: 52% of deals were “follow-on rounds”, the first year that follow-on rounds exceeded “initial” investments. On a dollar basis, the split was 55% follow-on : 45% new.
VentureSouth: 81% of deals were “follow-on rounds”; on a dollar basis, the split was 75% follow-on : 25% new.
In recent years, VentureSouth members have consistently make more investments in follow-on rounds than “initial” rounds. This is a function of a large, and generally healthy, portfolio: as existing companies raise again, we try to support them with further capital, if they remain attractive investments.
Our follow-on rounds are generally smaller than initial investments – sometimes 10-25% the size of the initial investment check. This is substantially different from “the market,” where the average follow-on round was 14% bigger than the average initial check ($231K vs $201K). What is going on there? Your guess is as good as mine.

Fewer board seats

The market: 2024 saw a decline of “angels” on boards, with the proportion of deals with a member or observer falling from 30% in 2023 to 26% in 2024 – a continuing decline.
VentureSouth: For the 8 new companies in which VentureSouth invested in 2024, a VentureSouth member signed up to serve on the board of 3 – 37.5%. Of the other deals, one deal was a convertible note without a board seat; and the other four companies had a board seat allocated to the round, but a large or more strategic investor took the board seat.
Overall, VentureSouth often “leads” deals and with a larger check and great influence often comes a board seat; and we typically prefer equity investments over SAFEs and Convertible Notes, which again typically have board seats. Like the ACA, we advocate for involved board presence to give the companies the best possible chance of success.

C-Corps

The market: 95% of investments were in C-Corps
VentureSouth: 100% of investments were in C-Corps.
With few exceptions, the administrative headache of LLCs outweighs the potential tax or other benefits, and so VentureSouth members almost always only invest in C-Corps.

Are SAFEs winning?

The market: In 2024, 38% of deals were preferred equity, 23% were convertible notes, 14% of deals were SAFEs, and 6% were common stock.
VentureSouth: In 2024, the mix for VentureSouth was 38% of deals in preferred equity, 53% in convertible notes, and 9% in “other” debt and equity, and only 0.2% in SAFEs.
For new investments in 2024 (excluding follow-on rounds), the mix was 77% preferred equity, 10% convertible notes, and 13% in “other” debt and equity; no SAFEs.
In general, VentureSouth members only invest in preferred equity the first time we invest in a company; in follow-on rounds, as the companies raise various equity, convertible notes, SAFEs, and other bridge rounds, we participate to support the company (and assuming it remains an attractive investment) – but still retain our preference for the certainty and more favorable risk-adjusted returns of pricing equity rounds.

Out of region:

The market: Some regions now invest more outside their region than inside, with 49% of total dollars now “outside” the home field, but southeastern groups invest 66% of their dollars at home.
VentureSouth: We invest 100% of our dollars “locally” – in the Southeast region in which we are based.
This is a deliberate policy: we think the Southeast is an attractive region with great tailwinds, but even more importantly we want to know, supervise, and assist founders in our home towns.

Group structure and longevity

The Market: The largest angel groups are over 20 years old and almost all operate both a network and a fund model, to accommodate investors with different investment interests and ideas.
VentureSouth: We started our first group in 2008 – so, at 17½, are younger than the most established groups – but have been around long enough to have learned some lessons! We offer both a network model (you choose each deal you would like to invest in) and a fund model (you put money into a fund, and it invests automatically in the deals that VentureSouth members make).

What other data points in the report would you like to see the “VentureSouth equivalent” of? Let us know and we’ll be happy to share!