Angel Groups Anticipate Rise in High-Quality Deals in 2008

This year's edition of the Angel Capital Association's (ACA) Angel Group Confidence Report reveals that angel investors are "cautiously optimistic" about their opportunities in 2008, despite recent predictions of a slowdown for the overall U.S. economy. In a survey of ACA members, nearly 55 percent predicted that the number of angel investments made by their group and the total dollars invested will increase this year. While most expect a decrease in the number of positive exits (through acquisitions or initial public offerings), 48 percent believe that both the quantity and quality of the deals they see in the coming year will be better than in 2007.

 

The report also includes a glimpse into the nature of angel capital groups’ activities in 2007. A vast majority of groups still focus on seed and early-stage investments, despite an increase in later-stage angel investment. Seed and start-up companies are targeted by 81.5 percent of groups, and 85.2 percent invest in early-stage firms. Expansion and later-stage companies are targeted by only 38.3 percent and 6.2 percent, respectively. Software continues to dominate the field, with 82.9 percent of groups preferring to invest in that industry. Medical devices and equipment closely follows with 75.6 percent, with IT services, business products and services, and industrial/energy not far behind.

 

ACA suggests one possible reason for optimism on the part of investors is the support provided by state governments to develop entrepreneurial talent and to increase the availability of early-stage capital. Many states, such as North Carolina, Pennsylvania, Washington and Wisconsin have created programs to build effective statewide angel groups and networks. The National Governors Association recently released an issue brief titled State Strategies to Promote Angel Investment for Economic Growth that addresses the options available to states attempting to create new capital opportunities.

 

The brief provides a number of models for state angel programs and several different approaches that governors may take to strengthen angel support. Six major approaches suggested in the report include:

• Educating investors though seminars, which provide networking opportunities in addition to tools and best practices;
• Connecting entrepreneurs to existing resources to improve the desirability of investments;
• Establishing and supporting statewide angel networks;
• Providing financial incentives through grants, loans and tax credits; and,
• Identifying metrics and monitoring the effectiveness of state programs.

NGA also provides information about how to implement these programs. For example, it explains the angel programs should avoid using competitive Requests for Proposals for angel grant programs. The amount of money and time required to complete these forms is substantial and the risk of publicly losing out on these opportunities can damage the group's reputation.

 

Best Practices for Angel Organizations

Over the past few years, the Angel Capital Education Foundation has published a series of white papers on best practices in the angel investment process. The white papers address the entire investment process, including deal screening, due diligence, deal structure and negotiation, and post investment monitoring. Access these guides through a single reference point at: http://www.angelcapitaleducation.org/dir_resources-white_papers.aspx