Angel investors committed fewer dollars but increased the number of investments during the first half of 2009, according to “The Angel Investor Market in Q1Q2 2009: A Halt in the Market Contraction” by the Center for Venture Research at the University of New Hampshire. Total investments in the first half of 2009 were $9.1 billion, a decrease of 27% over the first half of 2008, the study reports. However, 24,500 entrepreneurial ventures received angel funding during the period, a 6% increase from the first half of 2008. The number of active investors in the first half of 2009 was 140,200 individuals, virtually unchanged from the same period in 2008. “The significant decline in total dollars, coupled with the small increase in investments, resulted in a smaller deal size for the first and second quarters of 2009,” says Jeffrey Sohl, director of the UNH Center for Venture Research at the Whittemore School of Business and Economics and author of the analysis. “The decline in deal size of 31% from the first half of 2008 indicates that while angels have not significantly decreased their investment activity, they are committing less dollars resulting from lower valuations and a cautious approach to investing.”

Healthcare services/medical devices and equipment accounted for the largest share of angel investments, representing 28% of total investments in the first half of 2009, followed by software (14%), electronics/hardware (14%), industrial/energy (13%), and retail (8%). Angels also decreased their appetite for seed and start-up stage investing during the study period. Only 27% of angel investments occurred during the seed and start-up stage — a decrease of 19% over the same period in 2008 and the smallest percentage in seed and start-up investing for several years.

Philadelphia is one of the U.S. cities feeling the impact. “There is an enormous amount of innovation in the Delaware Valley in all sectors of science and business models, but the early-stage financing capability is drying up,” says David Freschman, founder and manager of Innovation Ventures, an early-stage VC firm based in Wilmington, DE. The Philadelphia area has major institutions, led by the University of Pennsylvania, which produce research that lends itself to commercialization. The region also is home to entrepreneurs willing turn that research into products and services and large pharmaceutical companies willing to purchase successful start-ups. However, investors are making fewer bets and placing those bets on technologies that need the least amount of funding to ready them for commercialization, says John Swartley, senior director of new ventures at Penn’s Center for Technology Transfer (CTT).

The pot of money available to develop companies beyond their initial phase also has decreased. Some VCs that provided early-stage investing have shifted their money into companies that are farther along the development curve. In turn, firms that still provide early-stage investing are selecting fewer companies. “We have to carry more and more of our companies across the goal line,” Freschman says.

Sources: News Blaze and Philadelphia Business Journal

Posted November 4th, 2009 under Tech Transfer

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