Angel Funders Report 2021 - Flipbook - Page 29
The type of investment is a critical factor in making an investment decision.
Preferred equity deals consistently attract the most capital, representing 46%,
followed by convertible debt at about 40% (Figure 15). Together, these two
securities represent more than 85% of all deals. This trend is consistent over time,
with a slight increase in convertible debt during 2020. ACA analysts note that
companies may be delaying priced rounds in the hopes of increasing pre-money
valuation. This is explored further in the valuation section of the report.
Company Tax Structure
While the business model and management team of each startup are the most
essential factors in early-stage investment decisions, deal terms and company
tax structures are also important considerations because both can impact angel
investment returns. Investor preference for C corps has not changed in several
years, representing almost 90% of all deals. While there is increasing discussion
among public policy groups about impact/mission driven investing, this has not
translated to broad adoption by angels of the often-publicized B corp structure*,
as shown in Figure 16.
FIGURE 16. C Corp Dominate Company Structures
The greatest change in security type was the increase in the use of SAFE notes.
In 2020, they accounted for over 8% of all deals, more than doubling their share
from 2019. Historically, “pre-money” SAFE notes have been favored by some
incubators and accelerators as a low-cost and fast way to execute many small preseed deals. Newer, “post-money” SAFE notes are now competing with traditional
priced rounds and convertibles for seed and Series A deals. This should concern
angels as these SAFE notes lack most of the investor protections of traditional
convertibles and priced rounds. While preferred shares and convertible notes
are used broadly, SAFE usage is found more in select regions. ACA analysts will
discuss this further in the regional investments section of the report.
FIGURE 15. Preferred Equity and Convertible Debt Dominate Angel Deals
* To learn more about the purpose and structure of B corps, see:
26 | Portfolio Companies
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