Angels’ Decreased Appetite for Seed and Start-up Investing
Historically, angels have been the most significant source of seed and start-up capital for entrepreneurs. Unfortunately, angels seems to have a much more cautious approach to investing lately. Angels’ seed and start-up stage investing declined to its lowest level in several years, according to the Angel Market Analysis for the first and second quarters of 2010 released by the Center for Venture Research at the University of New Hampshire. This trend could impact new ventures and job creation.
“Without a reversal of this trend in the near future, the dearth of seed and start-up capital may approach a critical stage, deepening the capital gap and impeding both new venture formation and job creation. This change in investment behavior is likely an indication of both a need to increase investments in existing portfolio companies in order for these portfolio companies to survive the recession and an extended exit horizon,” said Jeffrey Sohl, director of the UNH Center for Venture Research at the Whittemore School of Business and Economics.
According to the analysis, “The Angel Investor Market in Q1Q2 2010: Where Have All the Seed Investors Gone?,” in the first half of 2010:
- Angels committed fewer dollars in more deals, a result of the lower valuations. Total investments were $8.5 billion, a decrease of 6.5 percent over the first half of 2009. A total of 25,200 entrepreneurial ventures received angel funding in the first half of 2010, a 3 percent increase from the same period in 2009. The decline in total dollars, coupled with the small increase in investments, resulted in a 9 percent decline in deal size for the Q1 and Q2 of 2010 compared with 2009.
- 26 percent of angel investments were in the seed and start-up stage, marking a steady decrease that began in 2008 (45 percent) and 2009 (35 percent).
- 65 percent of the membership in angel groups was latent angels --individuals who have the necessary net worth, but have not made an investment -- which is an increase from 2009 (54 percent) and 2008 (36 percent).
- The top six sectors in terms of share of total angel investments were: Healthcare services/medical devices and equipment (24 percent), biotech (20 percent), software (12 percent), industrial/energy (11 percent), retail (9 percent) and media (5 percent).
- Expansion stage investing (14%) remained unchanged.
Download the Full Report: Q1Q2 2010 Angel Market Analysis Report