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Can You Net Angel Funding?

By Bizbox

Angel investors--who tend to be independently wealthy people who are willing to invest their own money in start-ups--are almost by definition, if not investors of a last resort, at least the last investors to leave. The current economic crisis has borne this truism out, but with a twist. Angels are investing in fewer and fewer start-ups as belt-tightening forces them to become pickier and pickier. On the other hand, the inadequacy of alternative forms of investment--the stock market is volatile; company bonds are unpredictable; government bonds are low; basic savings are set to be outpaced by inflation--has actually led to the increasing attractiveness of angel investing as simply another investment vehicle. In other words, fewer ventures were receiving angel funding, but total angel funding, at least in the first half of the year, was actually up.

As early as the beginning of this month, the Wall Street Journal reported that angels are being very stubbuorn about which start-ups they will invest in but remain willing ultimately to invest plenty. The Journal talked to several angels who said pretty much what we said above: the wise course is to invest more, but to invest it in fewer and ostensibly wiser endeavors.

The numbers bear this out.

Compared with the first half of 2007, in the first half of 2008 angel investing simultaneously decreased 3.8% in terms of how many ventures received such funding (23,100) and increased 4.2%--almost the same rate--in terms of how much was invested in this manner ($12.4 billion), according to a Download file">report put out by the University of New Hampshire's Center for Venture Research (h/t Inc.com). This while the total number of individual angel investors grew 2%, to roughly 143,000.

So who is getting this more widely but also more abundantly distributed capital?
-The top two industries should be unsurprising to those familiar with how venture capital generally works: software and healthcare companies received, respectively, 18% and 17% of all angel funding during the examined period (the first half of this year), though if you add biotech's 8% than the broader healthcare field is receiving at least a quarter of all angel funding.
-Here's an interesting set of statistics. The amount of angel investing that comes at its recipients' initial (seed and start-up) stages has remained mostly the same: 46%, up a not-very-substantial 4% from the 2007 first half. The difference comes when examining angel investing during the following two stages. Early-stage (post-seed/start-up) angel investing went down from 48% to 33%, while expansion stage funding exploded more than 150%, from 7% to 19% of all angel funding. The conclusion is clear: while angel investors remain fairly game to take on very young endeavors, they are going to be much more wary of companies that are at once big enough that they neeed more cash but small enough that their ultimate success isn't assured, instead favoring older companies where their stakes are probably a little smaller but their investments are more secure.
-Women represent 13% of angels and 10% of the owners of businesses that received angel funding; minorities represent 4% of angels and 10% of the owners of angel recipients. Importantly, both groups' yield--the chances that an entrepreneur seeking angel funding will secure some--are in line with the overall average.

So there you have it. Angel funding may be one of the few ways of scoring cash that is actually increasing (although it will be interesting to see the numbers for the second half of 2008, which experienced calamities much worse than the first half of the year). But you will need to work all the harder for it and be all the more deserving of it. Are you ready and prepared?

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