Angel Investor Market Shows Modest Retreat in First Half of 2007
By Erika Mantz, Media Relations
September 19, 2007
The angel investor market in the first half of 2007 has shown
signs of a small retreat from the growth of the past several
years, with total investments of $11.9 billion, a decrease
of 6 percent over the first half of 2006, according to the
latest research from the Center for Venture Research at UNH.
A total of 24,000 entrepreneurial ventures received angel
funding in the first half of 2007, a 2 percent decline from
the first half of 2006. The number of active investors in the
first half of 2007 was 140,000 individuals, 8 percent above
the first half of 2006.
“These trends indicate that while the total dollar size
of the market and the number of investments exhibited a slight
decline from the first half 2006, there was a significant increase
in the number of investors,” said Jeffrey Sohl, director
of the Center for Venture Research and professor of entrepreneurship
and decision sciences. “Reflecting this trend is the
decrease in the average deal size by 4 percent over the first
half of 2006 and an increase of 10 percent in the number of
investors per deal.”
Healthcare services/medical devices/equipment and software
remained the sectors of choice, with 22 percent and 14 percent,
respectively, of total angel investments in the first half
of 2007. This was followed closely by biotech at 10 percent.
Electronics/computer hardware, IT services, retail and industrial/energy
(which include environmental products and services) garnered
close to 10 percent each. The remaining investments were approximately
equally weighted across high tech sectors, with each having
3-5 percent of the total deals.
“This market level sector diversification indicates
a robust investment pattern. Since the angel market is essentially
the spawning grounds 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,” said Sohl.
Angels continue to be the largest source of seed and start-up
capital in the United States, with 42 percent of the first
half of 2007 angel investments in the seed and start-up stage.
This preference for seed and start-up investing is followed
closely by post-seed/start-up investments of 48 percent.
“This appetite for post-seed/start-up investing continues
a trend that began in 2004 and represents a significant change
from historical levels,” said Sohl. “While angels
are not abandoning seed and start-up investing, it appears
that market conditions, the preferences of large formal angel
alliances, and a possible slight restructuring of the angel
market are resulting in angels engaging in more later-stage
investments.”
New, first sequence investments represent 55 percent of first
half 2007 angel activity, indicating that some of this post-seed
investing is in new deals.
“This shift in investment strategies toward post-seed
investments reduces the proportional amount of seed and start-up
capital. This restructuring of the angel market has in turn
resulted in fewer dollars available for seed investments, thus
exacerbating the capital gap for seed and start-up capital
in the United States,” said Sohl.
In the first half of 2007 angels exited their investments
primarily through sale of the business (acquisitions by another
firm), with 61 percent of the first half 2007 exits through
trade sales. Exits by initial public offerings represented
6 percent of exits and bankruptcy occurred in 33 percent of
the exits. For all these exits the average rate of return was
30-40 percent and roughly half were at a profit.
The yield (acceptance) rate is defined as the percentage of
investment opportunities that are brought to the attention
of investors that result in an investment. The peak yield rate
of 23.3 percent occurred during the height of the investment
bubble in 2000. Post 2000 the yield rate stabilized around
10 percent. In 2006 yield rates leveled off at 20.1 percent
after a steady growth that began in 2004. For the first half
of 2007 the yield rate was 19 percent. “This mitigation
in the rise in the yield rate from the historical average reduces
the concern of an unsustainable investment rate, at least for
the short term,” said Sohl.
Women angels represent approximately 13 percent of the angel
market. Women-owned ventures account for 10 percent of the
entrepreneurs that are seeking angel capital and 16 percent
of these women entrepreneurs received angel investments in
the first half of 2007. Thus, while the number of women seeking
angel capital is quite low, the percentage that receives angel
investments is in line with the overall market. This trend
indicates that there is a need to provide the mechanism for
more women entrepreneurs to seek angel capital.
Minority angels account for 5 percent of the angel population
and minority-owned firms represent 10 percent of the entrepreneurs
that presented their business concept to angels. The yield
rate for these minority-owned firms was 16 percent, which is
comparable to the general yield rate. “While this yield
rate is encouraging, it is important to note that historically
the yield rate for minority-owned firms has been significantly
below the market yield rate. As such, it remains to be seen
if the final yield rate for the full year 2007 is consistent
with the first half of 2007,” said Sohl.
The Center for Venture Research has been conducting research
on the angel market since 1980. The center’s mission
is to provide an understanding of the angel market and the
critical role of angels in the early stage equity financing
of high growth entrepreneurial ventures. Through the tenet
of academic research in an applied area of study, the center
is dedicated to providing reliable and timely information on
the angel market to entrepreneurs, private investors and public
policymakers.
The Center for Venture Research also provides seminars to
angels and entrepreneurs, and research reports on aspects of
the angel market are also available. For more information visit
www.unh.edu/cvr or contact the center at 2-3341.
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