With bank financing so tight, many entrepreneurs hope to find angel investors to provide them some seed money. But there’s new evidence that even angel investors are scaling way back – and will continue to.
The Center for Venture Research at the University of New Hampshire yesterday released its year-end report of angel investing in 2008, showing that angel investing dollars fell 26.2% over 2007, to $19.2 billion. The total number of angel deals fell only 2.9%, to 55,480.
What this means: Interest among affluent individual investors to invest in small growing companies hasn’t abated much – but those investors are willing to devote fewer dollars to each deal. “They are committing less dollars resulting from lower valuations and a cautious approach to investing,” said Jeffrey Sohl, the Center’s director, in a news release.
The real drop-off in angel investing appears to have started in the second half of 2008, since a mid-year report by the Center found only very slight changes in angel investing up to that point compared with 2007.
The question moving forward is whether angel investing will rebound or continue to get worse.
Scott Shane, an entrepreneurship professor at Case Western Reserve University, predicts that the number of accredited angel investors – who tend to be angels who join organized angel-investing networks and invest in high-growth start-ups that go on to win venture capital – will drop off quite significantly. Prof. Shane points to a Wall Street Journal article showing that the number of U.S. households with net worths of at least $1 million and those with at least $1 million with assets available to invest have shrunk considerably in recent months, reaching 2003 to 2004 levels.
This only spells bad news for angel investing, since it’s these wealthy Americans who tend to join angel investing groups, he writes on USNews.com.
“Recent indicators suggest a significant decline in accredited angel investment activity in the near future, if we haven’t seen that decline already,” Mr. Shane says.
Have you ever tried for or received an angel investment? Do you expect the climate for angel investing will get better or worse in coming months?
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