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Angel Investing Down 10% Percent in 2008, But Some Investors Remain Optimistic
Investment by angel groups declined at least ten percent this year, according to the Angel Capital Association's (ACA) annual survey of angel group leaders. In January and February, about 55 percent of these leaders predicted that both their number of deals and total invested dollars would increase in 2008. Half of them now admit that their predictions for the year were overly optimistic. Still, many investors reported healthy activity during the year and many expect better results next year.
ACA estimates average angel group investment in 2008 to be $1.72 million, down from $1.94 million last year. The average number of closed deals shrunk 16 percent from 2007 to 6.1 per group. Meanwhile the average deal size grew to $280,936, up six percent. The change mimics the increasing preference for fewer and larger deals among venture capital firms.
Among respondents who reported fewer deals this year, a slight majority (53 percent) cited uncertain market conditions as a reason for this decline. Forty-four percent noted that the current economic downturn had decreased their group's appetite for new deals. Other explanations for reduced activity include: a loss of member wealth led to a reduced appetite for investment (43.5 percent), a change in the perceived viability of investments during the due diligence process (33.9 percent), a need to reserve additional follow-on capital for portfolio companies (32.3 percent), receiving fewer investment-quality opportunities than expected (29 percent), and dealing with an entrepreneur who was unable to fill out the round from other investors (19.4 percent).
Only 28 percent believe that their number of deals and total dollars invested will increase in 2009. Many investors, however, see a growing role for angel groups as company valuations decrease and early-stage investments become more attractive. Forty percent believe that both the quantity and quality of the deals they review will be of higher quality in the coming year.
Group leaders were also asked about changes they planned to make in their group's structure or investment process in 2009. Almost half (47.3 percent) said that they planned to increase their co-investment activities with other angel groups. One-third of respondents planned to increase cooperation with other groups like venture firms and individual angel investors.
Read the survey results at: http://www.angelcapitalassociation.org/dir_about/news_detail.aspx?id=179.