Angel investor activity declines 9% on average

KANSAS CITY, Mo. – Investment activity of angel investors has declined 9 percent per group on average in 2008, according to a nationwide survey conducted by the Angel Capital Association (ACA).
Yet the ACA Angel Group Confidence Report released earlier this month also showed that some angel group increased investment as they saw new opportunities during the recession.
Localized results of the survey were not available.
The association said its survey also found that as the recession lengthened, predictions for 2009 changed – between November 2008 and April 2009, a higher percentage of those surveyed forecast overall decreases in activity this year, but the percentage of respondents predicting more investment also increased.
Data was collected from leaders of ACA-member angel organizations in March and April of this year and is an update to a November 2008 survey on the impact of the recession on angel groups and predictions for 2009.
According to survey, the average group investment per deal in 2008 ($276,918) was about 4 percent larger than the 2007 average, but the average number of investments per group (6.3) was about 16 percent less than in 2007. Total funding per group in 2008 averaged $1.77 million and was 9 percent lower than the $1.94 million 2007 per group average.
As members of angel groups invest their personal capital, loss of individual member wealth and the overall decline of the economy were the most often cited reasons for the 2008 decline in angel group investment. Many noted that there are very few current opportunities for positive exits, via acquisitions or going public, during the economic downturn.
“Heightened selectivity by angels and venture capitalists has clearly amplified the financing challenge young ventures are facing today, even at collapsed valuations,” said John Huston, ACA chairman and manager of Ohio TechAngel Funds in Columbus, Ohio. “However, highly capital efficient start-ups that can reach cash flow break even with just a few million dollars of investment are having no trouble attracting capital. Our member angels have prospered through other downturns, but mentoring portfolio entrepreneurs has never been more essential to their success. More than 30 percent of ACA’s member groups foresee increasing both the number and dollar amount of their investments this year, reflecting their confidence that this market will produce many lucrative exits in the future.”
Although 40 percent of angel groups expect overall investment will decrease again in 2009, a majority of angel groups (53.8 percent) expect that 2009 investments and dollars will be the same or greater than in 2008.
In addition, nearly a quarter of angel groups indicate that the overall decline in company valuations and high quality of investment opportunities will mean they will be more aggressive in seeking new deals in 2009. There is even stronger belief that deal flow will be strong during the recession – 70 percent of angel groups believe that the quantity and quality of 2009 investment opportunities will maintain or increase over 2008 levels.