Angel Investment Market Grows By 10% In 2006


According to the 2006 Angel Market Analysis released yesterday by the Center for Venture Research at the University of New Hampshire, in 2006, the angel investor market experienced steady growth. Total angel investments reached $25.6 billion, which represents an increase of 10.8 percent over 2005. According to the study, 51,000 entrepreneurial ventures received angel funding in 2006, a 3 percent increase from 2005. According to Jeffrey Sohl, director of the UNH Center for Venture Research at the Whittemore School of Business and Economics, "If the angel market is to achieve sustainable growth, there needs to be a reasonable augmentation in active investors, and thus, level of participation is an important consideration. While the number of angel organizations, and individuals that are members of organized angel groups, is increasing, there is a larger percentage of latent angels (individuals who have the necessary net worth, but have not made an investment)."

The largest share of angel investments in 2006 went to healthcare services, medical devices and equipment (21% of total investments), followed by software (18%) and biotech (18%). The remaining 43% of investments were approximately equally spread across high-tech sectors. "Since the angel market is essentially the spawning ground for the next wave of high growth investments, this sector diversification provides an indication of investment opportunities that will be available for later stage institutional investors," Sohl said. The increase in angel investing is an extremely positive sign for the venture industry. More money means more startups, more jobs, more innovation, and as Sohl mentioned, more companies from which venture capital firms can choose to fund and take to the next level.

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Laurence D. Briggs says

Where does the assumption that angels are investing in deals that will require larger rounds later from VCs come from?

In our group we will normally not invest in deals if they will later require a VC investment.

Our attitude is that if we cannot fund the deal by syndicating it to other angels and maybe doing a second round ourselves or with strategic partners, then we will pass.

I hear similar comments from many angel investors. The general comment is that angel investing is not a feeder mechanism for VCs.

Posted at 5:18 pm
Dave Lavinsky says

Interesting point Laurence. I think in many cases, (e.g., sectors such as biotech which could require significant cash outlays before a liquidity event) that angel investing is still primarily a feeder mechanism for VCs.

But for other sectors (e.g., software, etc.), I could clearly agree with you that it is not.

I wish the study tracked that as I'd like to see if there is a significant trend towards angel investments without an anticipated VC follow-up round(s).

Posted at 9:51 pm
Bernie Day says

We at EZ Show have had a number of angel investors - thinking we were going to go for the larger round later.

However, there is such a great price to pay it just does not seem reasonable to do. Just this week, I met with "that next round" with a private equity firm.

Before coming to town for 2 days we'd agreed in principle to an investment of up to 45% IF they would provide the rest of the capital we needed to launch. We just finished our software and are ready - video ad-building space in Flash with streaming, stats and admin area. It's hot stuff - but the PEF wants to raise $3-5 million rather than the money we really need which is $500K or less!

We already have accepting us in their trial run of ad-making for their customers - I mean we don't need a ton of people on board until we land it, right? So - I'm really turned off of the whole idea of that "bigger" money and will stick with Angels.

So...any Angels interested in the $500K round we are opening up now that I'm kicking the PEF to the curb?

Posted at 5:20 pm
Jerry L. Brown says

There are more angel investment companies that for a fee, willing to assist a startup company, than there was in 94. Few angel companies, today, appear to concentrate their interests, locally. Not willing to venture out of their state,or area.
But angel investment groups, are still the best project funder, for companies that are willing to work hard and have a fast growth, with repayment to angel group, within 5 ot 8 years. Ivestments, while huge, earn more interest than at current interest rates on the stock market, plus earning various board seats/stocks in company,which can be resold back to core company, if so chosen.

Greater power than major banks for the young growth company/individual.

Posted at 2:44 am

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