Angels Flock Together and Offer Less

[qi:101] Research out today shows that the number of angel investors and angel-backed deals stayed more or less the same from 2007 to 2008, but that the amount those investors are putting into deals has dropped by 26.2 percent. The data, collected by Jeffrey Sohl, director of the University of New Hampshire Center for Venture Research, shows a 2.9 percent decrease in deals done by angels during 2008 and a less than 1 percent drop in the number of angels year over year.

That means the same number of angels were putting less money into about the same number of deals last year. Sohl speculates that lowered valuations and more cautious angels are to blame. Angels have seen their valuations and equity stake in startups drop — with equity stakes falling from around 23-24 percent to 18-20 percent, Sohl says. At the same time, deteriorating net worth has made angel investors more cautious, leading them to syndicate more deals in the last few years, which may account for the same number of players investing less. As Sohl said last August, when I wrote about angels in a down economy, “Since their net worth may be down, angels have less to invest, so we’re seeing that instead of one angel putting $100,000 into a deal, four or five angels might put in $25,000 to $20,000 apiece.” That also meshes with what the heads of various angel groups have told me about having to lower the amount an angel needs to commit in order to participate in a deal.

At the same time, entrepreneurs are asking for more. Knox Massey, head of theĀ Atlanta Technology Angels says five years ago the typical entrepreneur asked for $500,000 to $750,000 from his angel group and now they ask for $1 million to $3 million. The deals are often a lot more complicated as well, with startups coming back to angels for rounds they would normally shop to a venture investor. Massey turns those entrepreneurs away. So for those shopping for angels, reduce your expectations, and be prepared to take on a lot of angels to fund your deal.

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