Monday, April 7, 2008

UNH report shows angels moving into later deals

By Christopher Calnan

Fueled by a growing popularity of angel investment groups, angel investing in expansion-stage deals increased sharply last year, highlighting the widening capital gap facing entrepreneurs nationally.

The portion of expansion-stage deals funded by angels reached 21 percent compared with previous years, when it was typically 12 percent, according to a new report by the Center for Venture Research at the University of New Hampshire.

The increase was prompted by angel groups and syndicates, which are able to make larger, later-stage investments by pooling capital, center director Jeffrey Sohl said. If it turns into a trend, the practice could make it more difficult for early-stage companies to attract the small amounts of capital they typically seek, Sohl said.

"Seed-stage stuff is going to get tougher to get," he said. "Are the groups creating capital or are they reallocating capital?"

Still, the bulk of the year's angel investments -- 39 percent -- were in seed and startup deals, the report shows.

The annual study also showed that more angel investors participated in more deals nationally last year compared with 2006. But the total capital invested barely budged over the previous year's level.

"There are more angels and more deals. They're spreading the risk around," Sohl said. "Recessions aren't bad times to invest in companies."

Total investments by angel investors reached $26 billion last year, a 1.8 percent increase over 2006. But the number of ventures funded by angels reached 57,120 last year, a 12 percent increase from the 51,000 in 2006, the report shows.

The number of active investors reached 258,200, a 10.3 percent increase compared with the previous year.

During 2007, mergers and acquisitions represented 65 percent of the angel investor exits, and initial public offerings represented 4 percent. Bankruptcies accounted for 27 percent of the outcomes, which Sohl said is a normal level.

"The good sign is that they're still playing in the market, but they're getting more people in the deals," the UNH researcher said. "That's an encouraging sign, that activity remains high."