U.S. Angel Investment Declines 6% in First Half of 2007

The angel market may be showing the first signs of leveling off following four years of moderate sustained growth. Angel investment in U.S. companies fell 6 percent in the first two quarters of 2007, according to the University of New Hampshire's Center for Venture Research (CVR). The decline itself is modest but is also the first indication that the angel market, which is a valuable capital source for many early-stage companies, may not be able to continue its pattern of steady post-tech bust growth.

 

The CVR report also finds that the average deal size fell by 4 percent during the first half of the year, and the number of deals declined marginally at 2 percent. At the same time, however, the number of investors per deal increased by 10 percent, signaling the increasing importance of angel networks in the industry.



The new numbers also reflect greater industry diversification in angel investments. The industrial distribution of angel capital is important because of the angel industry's role in creating the next wave of expanding companies and prospective future investments for venture capital funds. Last year, the top three industries (Healthcare/Medical Devices/Medical Equipment, Software, and Biotech) accounted for 57 percent of all deals. Thus far this year, those industries have only received 46 percent of angel deals.

 

Several industries, such as IT services and retail, which have not been among the top targets for angel investment in recent years, posted significant gains over the first half of last year. The industrial/energy sector, which includes clean energy and environmental technology companies, did even better, doubling its funding during that period. This increase mirrors trends in the venture capital industry where investment in the industry/energy sector grew by more than 125 percent last year.



One potentially troubling finding in the CVR report is that, at least for the first half of the year, post-seed-stage deals have finally overtaken seed- and start-up-stage deals as the primary target for angel investment. While the angel market is typically regarded as a provider of early-stage funding, the number of later-stage deals has been growing for years. Jeffrey Sohl, director of CVR, believes that market conditions and the emergence of large formal angel alliances have contributed to the rise of later-stage investments.

 

Since many companies rely on the availability of angel capital to survive the earliest stages of business formation, the shift to post-start-up-stage deals could exacerbate the capital gap for seed-stage firms, according to Sohl.



Read the latest update on the U.S. angel market from the UNH Center for Venture Research at: http://www.unh.edu/news/cj_nr/2007/sep/em19angel.cfm