Economy Has Angels Pulling Back

[qi:026] The venture capital market has started conserving cash, and now angels are doing the same, according to the annual Angel Capital Association confidence report out today. About 48 percent of angel investment groups surveyed invested less than they had predicted they would at the start of the year. A decrease in personal wealth, the need to reserve follow-on capital, and uncertainty about the economy are the driving forces behind angel deals that didn’t get done this year.

However, the same trends we covered back in August — angels doing more deals with other angels and putting more money in fewer deals — seem like they will continue into 2009, according to the report. Based on survey responses, the average size of group investment per deal in 2008 ($280,936) is about 6 percent larger than the 2007 average, but the average number of investments per group (6.1) will be about 16 percent less than 2007. In the financing world, a smaller pie usually means fewer, bigger pieces.

And unfortunately, most angels (40.3 percent) believe that the current market conditions won’t lift until 2010. Only 15.2 percent thought the market would recover by the second quarter of 2009, with 35.9 percent estimating it would take until foruth quarter next year. The least optimistic (8.7 percent) believe times will be tough until 2011 or later. That’s pretty grim considering that angels tend to be optimists.

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