Angel Funding: Deals Are Up, Dollars Are Down

Angel investors are committing fewer dollars but spreading them out over more deals as they hunker down and look for exits, according to new analysis from the Center for Venture Research at the University of New Hampshire (PDF).

The study, which looked at the first half of 2010, found that total investments fell 6.5 percent to $8.5 billion compared to the same period in 2009. The number of angel-backed ventures, however, grew 3 percent to 25,200, resulting in a 9-percent decline in deal sizes for the first two quarters of 2010.

Angels are also backing away from early-round deals, with only 26 percent of deals for seed and start-up stage investments, down from 35 percent last year and 45 percent in 2008. Jeffrey Sohl, director of the UNH Center for Venture Research at the Whittemore School of Business and Economics, said the trends likely reflect the need of investors to increase their bets on existing start-ups to help them survive and weather more prolonged exit horizons. He worries, however, that if the trend continues, it could create a critical crunch for new start-ups and job growth.

The study found that “latent angels,” or individuals in angel groups who haven’t made an investment, increased to 65 percent, up from 54 percent last year and 36 percent in 2008. It could be another sign that investors are wary of longer exit horizons, Sohl said. Healthcare and medical device and equipment investments received the largest share of money, with 24 percent of total angel investments, followed by biotech (20 percent), software (12 percent), industrial/energy (11 percent), retail (9 percent) and media (5 percent).

As Om reported earlier this month, seed-stage investments bounced back in the third quarter. But overall, it seems we’re settling into a period of more deals for smaller amounts. According to CB Insights, overall investments were down to $5.4 billion in the third quarter, the lowest amount in five quarters, but deal volume was up to 715 investments, the second highest tally in two years.

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Post and thumbnail photos courtesy of Flickr user Darrren Hester.