Angels Staying in the Outfield

Angel investors are approaching investments with a more cautious eye given recent market volatility claims a recent research report by the Center for Venture Research at the University of New Hampshire. The 2007 Angel Market Analysis showed that the growth of investments were relatively steady while the amount invested grew at a slower pace implying that deal size was on the downswing.

Since angels invest their own capital, unlike venture funds that invest funds of their limited partners over a set time frame, any economic downturn is likely to cause a retraction in the amount typically invested by angels. For those without a finance background, increased volitilty is tantamount to increased risk, which is not an investor’s friend. Granted that there is a risk-reward relationship which implies that angel investing has inherent high risk in order to meet ample returns. However, when usually stable investments (such as mutual funds, stocks, bonds, etc.) become more volatile, angels need to reduce their overall exposure which tends to result in lower angel investing.

Interestingly enough, the report shows that 27% of angel investing went to software firms with biotech/life sciences getting 31%. The remainder went to indutrial/energy and retail to round out the top groups.

All of this just builds on earlier comments I made about the changing landscape for early stage comapanies.