Durham, N.H. – American angel investors continue to be the largest source of seed and start-up capital in the nation, investing $12.7 billion in the first half of 2006, an increase of 15 percent over the same period in 2005, according to the Center for Venture Research at the University of New Hampshire.
The center, which has been conducting research on the angel market since 1980, reported that healthcare services, software, and biotech remained the sector of choice for angels.
While the total dollars were up, the number of entrepreneurial firms receiving angel funding was down six percent, to 24,500, compared to the first half of 2005.
“Reflecting this trend is the increase in the average deal size by 22 percent over the first half of 2005,” Jeffrey Sohl, director of the Center for Venture Research, said in a statement.
Sohl said the diversification in market sectors indicates a robust investment pattern. Healthcare services/medical devices led the way, capturing 27 percent of angel funding in the first half of 2006. Healthcare was followed by software, 18 percent; biotech, 10 percent; retail, seven percent; media, seven percent; IT services, seven percent; and industrial/energy, five percent.
“Since the angel market is essentially the spawning ground for the next wave of high-growth investments, this sector diversification provides an indication of investment opportunities that will be available for later stage institutional investors,” Sohl noted.
The center does not provide a state-by-state breakdown, but national angels might be paving the way for an increasing supply of later-stage venture capital in Wisconsin
A recent Wisconsin Angel Network report indicated that venture investors made $18 million in funding commitments to Wisconsin firms from June through August of this year. If that three-month total is any indication of the pace of venture investing overall, it would put venture investment activity slightly ahead of the $69 million awarded to 12 firms in 2005. In that year, Wisconsin’s venture capital ranking slipped from 26th to 35th, according to a study conducted by NorthStar Economics, Inc., Madison.
It is the angel investor, however, that early-stage companies increasingly rely on. With 40 percent of their first half angel investment coming in the start-up stage, angels continue to be the largest source of seed and early-stage capital in the United States.
The number of active investors in the first half of 2006 numbered approximately 130,000 individuals, or three percent higher than the first six months of 2005. Approximately eight percent of those angel investors are women, and three percent are minorities.
Their support for seed and start-up investing, however, closely follows post-seed/start-up investments of 45 percent, the report said. Angels are not abandoning seed and start-up investing, but factors like market conditions, the preferences of large formal angel alliances, and a slight restructuring of the angel market are causing angels to engage in more later-stage investments, Sohl said.
“This increase in post-seed/start-up investing continues a trend that began in 2004,” he noted, “and represents a significant increase in historical levels.”