08 Oct Angel investors steady but more cautious in first half of 2008
Durham, N.H. – The angel investor market in the first two quarters of 2008 continued on a reasonable growth path, with total investments of $12.4 billion, but experienced a decline in the number of investment deals, according to a report by the Center for Venture Research at the University of New Hampshire.
While total investments increased by 4.2 percent over 2007, a total of 23,100 entrepreneurial ventures received angel funding, a slight decrease of 3.8 percent 2007.
However, the number of active investors in the first half of 2008 was 143,000 individuals, an increase of 2.1 percent over 2007.
The modest increase in total dollars and angel investors, coupled with the decrease in investments, resulted in an eight percent growth in deal size.
The Center for Venture Research has been conducting research on the angel market since 1980. It reported a 43 percent response rate for this survey.
According to the center, the data indicates that angels have a cautious approach to investing in light of the recent volatility in the economy, and they are reducing their individual risk exposure by including more angels in each deal.
With 18 percent of total angel investments, software accounted for the largest share, followed by:
- Healthcare services/medical devices/equipment, 17 percent.
- Industrial/energy, 10 percent (potentially reflecting an increasing appetite for green technologies).
- Biotech, eight percent. This sector now has dropped from the top three sectors for the first time in several years, while retail and media have solidified their place in the top six preferred sectors.
Angel investors continue to be the largest source of seed and start-up capital, with 46 percent of Q1 and Q2 angel investments in the seed and start-up stage. The Center said that’s on par with the same period of 2008 (42 percent).
Angels, however, decreased their share of post early-stage investing, with 33 percent of investments in this stage, down from 48 percent in the first half of 2007. The decline was offset by an increase in expansion stage investing to 19 percent, up from seven percent from the previous year.
As angel investors continue to represent the largest source of seed and start-up capital, the Center said market conditions and the so-called “capital gap’ require them to engage in more later-stage rounds. Yet new, first sequence investments represented 65 percent of Q1 and Q2 2008 angel activity (unchanged from 2007), which indicates a continued preference for new instead of follow-on investments.
The yield rate, which is defined as the percentage of investment opportunities that are brought to the attention of investors that result in an investment, was 11 percent in the first half of 2008. That continues a decline in yield rates that peaked in 2005, when the rate was 23 percent.