Angel Investing Groups Have Become More Selective During the Recession

During the current recession, angel investing groups have exhibited the following pattern: a decline in the amount of money sought by entrepreneurs, a reduction in the number of companies receiving financing, and a decrease in the expected value of companies, but a small increase in average deal size.

These conclusions are included in an article by Scott Shane, a professor of entrepreneurial studies at Case Western University, on the New York Times website today.

Citing data from a survey by the Angel Capital Association, Shane noted these figures for 2008: a 9% decrease in angel capital dollar investment, a 16% decline in the number of angel deals, and a 4% increase in average deal size.

Data from Angelsoft, which provides investment tracking software for angel investment groups, shows "an increase in investment selectivity" among angel groups in 2008. That selectivity was evident in a drop in the share of companies who sought financing who actually received an investment from 3.9% in 2007 to 1.8% in 2008.

Angelsoft data also showed that the amount of financing sought by the typical entrepreneur declined from about $1 million in the fourth quarter of 2006 to $750,000 in the first quarter of 2009. And the average company valuation fell from $3 million in the pre-recession period to $2.5 million in the 2009 first quarter.

It is clear that angel investor groups have become very cautious in the current environment, and, and in my judgment, that caution is likely to continue for at least the next 6-12 months.