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.


Network Security Guy

M&A’s will be coming back soon though, and those will be followed by investment. I don’t think it’s going to be as bad as everyone thinks. The ever increasing mobility of companies and their mobile workforces, the speed of business, everything, will lead to this getting cleared up faster than everyone thiks.

David S. Rose

Knox Massey (who is a significant angel investor and and group leader in Atlanta) has written an interesting an right-on-target update about what the angel ‘market’ looks like in his area this month. It jibes completely with what we’re seeing in New York (increased syndication among angel groups, for example. We’re currently working on joint deals with Virginia Active Angel Investors, Boston Harbor, Houston Angel Network, Minority Angel Investor Network, and others.) Be sure to click on the link in his post above to read it!

David S. Rose

What is actually happening in the world of angel investing is quite interesting. In the early part of the year, angel investments were trending upward, but as the recession hit after the summer, angels began to bifurcate. The “casual” angels, at the lower end of economic spectrum, began pulling back (in many cases sharply). At the same time, the “serious” angels (many of whom belong to the more active organized groups) held steady, because there are still interesting companies starting up, and valuations are now very, very reasonable. New York Angels, for example, invested in more deals (21) this year than in any other year since its founding.

To answer Mike D’s question, the limited statistics as are available show that all angels in the US invested close to $25 billion last year (roughly the same as the VC industry). The organized groups, however, accounted for only a small portion of that, although it is growing significantly. Today there are many hundreds of organized groups, ranging from ten to 250 investors. Angelsoft, the SaaS platform that powers virtually all of them, currently has well over 14,000 accredited investors on the system, and that number is growing steadily.

Mike D

Not too surprising. I’d be interested to know is there any data out there that shows the percentage of the total angel money raised by angels outside of these official angel groups vs. unaffiliated angels (investing on their own or through more informal groups). I would guess these angel investment groups are a small part of the overall angel market.

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