Sunday, April 20, 2008

Angel investors drive innovation

The Center for Venture Research at the University of New Hampshire reported that in 2007, angels invested almost as much as venture capitalists in startup companies, $26.0 billion vs. $29.4 billion. Focused on seed and startup stage financings, angels invested in far more firms, 57,120 vs. 3,813 for venture capitalists. Angel investment growth was flat in 2007 vs. 2006 while venture capital investment grew 11%. San Francisco Bay Area angel investors comprised 10% of total angel investment activity. As with venture capital, the top four categories of angel investment in order were software, healthcare, biotech and energy.

Angel investing was once a solitary activity driven by personal networks, the practice has been formalizing in the last several years and there are now over 150 angel investor groups in the U.S. and Canada. The groups typically meet monthly where 3-6 pre-screened companies present to members. Angel investors are not disengaged retirees, 80% continue to be actively involved in the business world. Cleantech and even social venture capital are starting to be interest areas for angel investors.

Angel investors are a critical component of the entrepreneurial ecosystem and should be encouraged and sponsored by communities trying to establish a more innovative environment. For startups, angels can be an important resource for funding, feedback, contacts and exposure. The contribution and impact of angel investors can be expected to grow.