Super Angels Not So Super? Angel Investing Deals Up, But Dollars Down for 2010

11/5/10Follow @gthuang

For all the fuss about “super angels” and “angels are the new VCs,” a report out this week from the University of New Hampshire says angel investors are putting less money into companies overall, especially at the seed and startup stages, compared with previous years. Of course, there are many factors at play here.

The numbers cover the first half of 2010, and they come from a report released by the Center for Venture Research at UNH. According to the report, angel investments in this period totaled $8.5 billion, a decrease of 6.5 percent over the same period in 2009. Angel investors put money into a total of 25,200 entrepreneurial ventures in the first half of this year—a 3 percent increase in the number of deals from the first half of 2009. But the number of active individual investors was 125,100, an 11 percent drop from last year.

Perhaps more telling was that only 26 percent of angel investments were classified as seed or startup stage. This continues a downward trend that saw seed/startup investments make up 45 percent of deals in 2008, and 35 percent in 2009.

“Historically angels have been the major source of seed and startup capital for entrepreneurs, and this declining interest in seed and startup capital represent a significant change in the angel market,” said Jeffrey Sohl, director of the UNH Center for Venture Research, in a statement. “This change in investment behavior is likely an indication of both a need to increase investments in existing portfolio companies in order for these portfolio companies to survive the recession and an extended exit horizon.”

So it sounds like angel investors and venture capitalists have similar problems. Part of the explanation, at least on the tech and software side, is that Internet-based companies need much less capital to get started and reach the market these days. So it’s not surprising that angel dollars are down in that sector.

Looking across sectors, angel money was distributed over healthcare and medical devices (24 percent), biotech (20 percent), software (12 percent), industrial/energy (11 percent), retail (9 percent), and media (5 percent). That’s a pretty standard breakdown, and it’s consistent with the lower costs of software.

Although the conclusions of the report are somewhat negative for angel capital, the worst may be over for both investors and startups. “The angel market appears to have reached its nadir in 2009,” Sohl said.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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