Tuesday, July 5, 2011

Angel Investments Up in 2010

Check out the results of a study published by the University of New Hampshire Center for Venture Research. It shows that while the U.S. was emerging from the recession, angel investors were apparently becoming more optimistic as a whole about potential investments and target company prospects. According to this study (Jeffrey Sohl, "The Angel Investor Market in 2010: A Market on the Rebound", Center for Venture Research, April 12, 2011), a total of 61,900 companies received angel investments in 2010, an 8.2% increase over the 57,200 entrepreneurial ventures that received angel funds in 2009. Angels investments in the U.S. totaled $20.1 billion in 2010, a 14% increase over 2009. Comparing the two stats, one can see that angel investors were channeling more funds into more companies. That funding helped those companies create an average of six additional jobs per venture in 2010.

Why is this? The study doesn't give any reasons so here are my thoughts and observations. Ten years ago the angel investor market had hit $30 billion in total angel investment (down from 2000, which was the true height of the tech investment bubble). That number plummeted by nearly 50% to $15.7 billion in 2002. Then the angel investment market began a steady rise until the real estate bubble burst in late 2007. The angel investor market then dropped in 2008 and 2009. It began to rise again in 2010. See the correlation?

It appears that angel investors are a fairly resilient bunch and believe in the continued, long-term growth of small businesses in the U.S. The types of small businesses may change (from manufacturing to technology to energy and so on), but the innovation continues. Remember, most angel investors are wealthy individuals. When the stock market and/or real estate take a dive, so does the investment portfolio of many angel investors. They have to regroup. Also, when bubble bursts and a recession follows, more companies file for bankruptcy or otherwise "go under". So some angel investors may exit the angel investment market for a period of time to concentrate on rebuilding their portfolio after a company he/she invested in went belly up.

I see a continuing rise in angel investments over the next few years. What do you think?


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