The Angel Capital Association released results of a survey that they did today on their web site. They report mixed results projected for angel investing projections in 2009:

While full data for 2008 investments are not yet in – as many angel groups expect to finalize investment deals in December – the picture from the survey is that total angel group investments in North America will decrease by at least ten percent from 2007. Survey data for the ACA Angel Group Confidence Report was collected from leaders of ACA member angel organizations November 6 to 18th. About two-thirds of all ACA member organizations participated in the survey.

Based on survey responses, the average size of group investment per deal in 2008 ($280,936) is about six percent larger than the 2007 average, but the average number of investments per group (6.1) will be about 16 percent less than 2007. The average total funding by each group is therefore estimated to be about $1.72 million, more than ten percent less than the 2007 figure of $1.94 million.

Group leaders had been optimistic about increasing their investments at the beginning of this year, in a survey conducted in January and February, 2008. But in this November survey, nearly half of the respondents (47.9 percent) found their activity was less than they had predicted for 2008. Activity was higher for 16 percent of the angel groups and another 36.2 percent found that their investment activity was about the same as they had forecast.

Also, David S. Rose, our CEO, was interviewed by Tech Confidential today on his view on the impact that the current market climate will have on angel investing. His comment:

TC: A recent survey by the Angel Capital Association indicates that angel group investments in North America this year will decrease by at least 10% from last year. Why do you say the role of angels will increase?

Rose: In the near term we will see a divergence in the angel community. The “casual” angels, people at the lower end of the accredited investor spectrum, will likely pull back during the crisis because their base of investable capital is shrinking, and there is going to be a significant movement away from risk. At the same time, the “serious” angels are likely to maintain or increase their early-stage investing during this period, because innovation doesn’t stop during a recession, and valuations are now quite attractive for startup deals in this tight market.

In the longer term, angels will unquestionably be playing a larger role in the startup space. Plummeting technology and distribution costs have made it possible to start highly scalable businesses anywhere, at any time, and on a shoestring budget. Because of the low capital requirements for these types of businesses, it is very difficult for traditional venture funds to get involved early in a company’s life cycle, since the funds need to put many millions of dollars to work. At the same time, the universe of active angel investors, leveraged by organized groups as well as by global platforms such as Angelsoft, is rapidly expanding to step in and provide funding at the early stage.

Today, in the U.S. early-stage market, angel investors and traditional venture capital funds invest roughly the same amount annually, between $25 billion and $30 billion. I believe that within 10 years, angels will be investing more than twice as much as VCs into startup and early-stage companies.

We think that both articles are valuable reads for anyone seeking angel or VC funds next year. Its clearly a challenging market, but the most important thing to take away from the articles is that there indeed will be funds in 2009 for the right companies at the right valuation, despite the market climate.

Mark I LaRosa :: Dec.12.2008
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