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2010 Shows 14% Increase In Angel Investor Funding & Deals


center for venture researchThe angel investor market in 2010, following a considerable contraction in investment dollars in 2008 and 2009, exhibited a rise in investment dollars and in the number of investments. Total investments in 2010 were $20.1 billion, a robust increase of 14% over 2009, according to the Center for Venture Research at the University of New Hampshire.

A total of 61,900 entrepreneurial ventures received angel funding in 2010, an increase of 8.2% over 2009 investments. The number of active investors in 2010 was 265,400 individuals, a small growth of 2.3% from 2009. The significant increase in total dollars, coupled with the rise in the number of investments resulted in a larger deal size for 2010 (an increase in deal size of 5.4% from 2009).  These data indicate that angels have significantly increased their investment activity, and are committing more dollars resulting from higher valuations. It appears that a cautious optimism to
investing is taking hold. Noteworthy changes did occur in the critical seed and start-up stage investment landscape.

Sector Analysis

The following is a breakdown of angel investments by sector:

  • 30 % Healthcare Services/Medical Devices and Equipment
  • 16% Software
  • 15% Biotech
  •  8% Industrial/Energy
  •  5% Retail
  •  5% IT Services

Job Growth

Angel investments continue to be a significant contributor to job growth with the creation of 370,000 new jobs in the United States in 2010, or 6 jobs per angel investment.

Return Rates

Mergers and acquisitions represented 66% of the angel exits, and bankruptcies accounted for 27% of the exits in 2010. About half of the angel exits were at a profit and annual returns for angel’s exits (mergers and acquisitions and IPOs) were between 24% and 36%, however, these returns were quite variable.


Angels again reduced their investments of seed and start-up capital, with 31% of 2010 angel investments in the seed and start-up stage, a decrease of 4% from 2009. Angels also exhibited an increased interest in post-seed/start-up investing with 67% of investments in the early and expansion stage, an increase from 2009. New, first sequence, investments represented 41% of 2010 angel activity, also a decline from the last year of 6%. This decrease in seed/start-up stage and first sequence investing is of concern. However, as existing investments move to an exit and thus reduce the need for follow-on investments, it is anticipated that angel capital will become available for new seed stage investments.

Yield Rates

The yield rate is defined as the percentage of investment opportunities that are brought to the attention of investors that result in an investment. In 2010 the yield rate was 18.4%, an increase from the 2009 yield rate (14.5%). While a higher yield rate is an encouraging development for entrepreneurs seeking angel capital there is a question of the sustainability of this rate. As the yield increases, more entrepreneurs may begin to seek angel capital and as this supply increases it is possible that the yield rate will retreat to the historical average of 10% to 15%.

The Center for Venture Research (CVR) has been conducting research on the angel market since 1980. The CVR’s mission is to provide an understanding of the angel market through quality research. The CVR is dedicated to providing reliable and timely information on the angel market to entrepreneurs, private investors and public policymakers. For more information visit Center for Venture Research or contact the CVR at 603-862-3341.

Original article credits:

Jeffrey Sohl, “The Angel Investor Market in 2010: A Market on the Rebound”, Center for Venture Research, April 12, 2011.

Forget the Jockey, Bet on the Horse! by Thomas Thurston |


startup reportA MICRO-EXPERIMENT

Framework in Question: Great management leadership is predictive of superior firm performance. (i.e. ‘bet on the jockey, not the horse’)

Framework Background: Venture capitalists and angel investors cited the “quality of the management team” as a top indicator of likely startup success in a 2009 poll. Indeed, few people would prefer bad, dysfunctional teams to good, effective teams. There are numerous empirical studies supporting the view that good leadership can, indeed, make a positive difference in company performance. But is it predictive?

First, it should be noted that there have been many studies around this general topic. For example, a study of 132 Methodist churches over 20 years found that new ministers with a history of growing membership and donations made similar improvements to new churches after being transferred (Pfeffer & Blake). A study of major league baseball coaches found that better managers boosted team performance (Kahn). A 40-year study of labor and capital productivity in the automobile industry found that leadership had an impact on firm performance (Lieberman, Lau & Williams).

Landmark research by psychologist Dean Keith Simonton similarly concluded that approximately 10% of contributors frequently account for 90% of contributions (Simonton). This is analogous to the “80/20 rule” where 80% of work is typically done by 20% of those involved. Similarly, one study found that only 16 composers out of 251 had produced roughly 50% of the classical music that is now performed and recorded (Sackman, Erikson & Grant). The best and brightest have a disproportionate impact.

Our Analysis: Great teams are, by definition, better than bad teams. This is not in dispute. However it is quite another thing to assert that great teams are predictive of superior firm performance. Are startups with great leaders statistically more likely to survive than startups without great leaders?

To test the predictive validity of the “great leadership” variable, 100 startups were separated into two categories (50 that survived, and 50 that were shut down). A number of leadership-related classification schemes were then tested against the sample.

Conclusion 1: Highly subjective. The most obvious challenge in attempting to make predictions on the basis of “great” or “bad” leadership is the inherent subjectivity within the classification scheme itself. After all, what makes a great team “great”? Experience? Education? Track record? Intellectual horsepower? Intra-industry expertise? Extra-industry expertise? Height? Weight? Eye color? Animal spirit? Other? What is “great”? Leadership can be largely intangible. Therefore a relatively limited number of easily measured factors were tested in this study. Considerations beyond these factors were not tested and therefore will not be addressed here.

Conclusion 2: Not predictive. Acknowledging the challenges of this subjectivity, the following potentially leadership-related attributes were tested in this sample (with their obvious limitations):

  • Total years of higher education held by the leadership team (Bachelor’s degree or higher): No statistically significant correlation to firm survival or failure
  • Years of work experience post-higher education: No correlation
  • Years in same industry: No correlation
  • Years in “big companies” ($500 million in annual revenue or more): No correlation
  • Years in “startups” (0-3 year old firms): No correlation
  • Years in professional consulting industry: No correlation
  • Number of team members with MBA degrees: No correlation
  • Number of team members from Ivey League schools: No correlation
  • Total team age: No correlation
  • Age of CEO/Leader: No correlation

Secondary Research: As stated earlier, this analysis was a limited attempt to address a much broader question. To more fully explore the issue, other external studies were reviewed.

An analysis of intelligence quotient (IQ) found that IQ is the most powerful predictor of job performance across studies, but still seldom correlated more than 0.4 with performance. In other words, IQ did not account for approximately 84% of performance (Pfeffer & Sutton).

The impact of changes in leadership was studied across 167 companies over a 20-year period and concluded that company and industry have far larger effects on sales and profits than leadership (Lieberson & O’Connor). Leadership studies of large samples of CEOs, University Presidents and Managers of sports teams showed that organizational performance was largely determined by factors beyond a leader’s control (Pfeffer). Several studies have also shown that changing CEOs has no statistically significant impact on organizational survival or death (Carroll and Hannan).

A wide review of leadership studies as far back as 1977 found that, while leaders have some impact, their actions rarely explain more than 10% of the difference in performance between the best and worst organizations and teams (Pfeffer & Sutton).

Summary: Bad, dysfunctional teams can have an infinite ability to destroy any business. No argument there. However this experiment found that the tested factors did not create statistically higher likelihoods of firm survival, and secondary research suggests that teams can have an impact - but less than you might think.

We conclude that teams with the tested qualities may indeed be nice to have, but they were not significantly predictiveof survival or failure in our sample. While a seemingly anticlimactic finding, it does suggest that betting on the "jockey" (leadership team) and not the "horse" (business itself) can easily lead to bad decisions by managers and investors alike. Good and bad teams - as defined in our samples - failed at the same rate. Perhaps the horse deserves a second look after all.


  1. Pfeffer & Blake, Administrative Succession and Organizational Performance: How Administrative Experience Mediates the Succession Effect, Academy of Managemnet Journal 29 (1986)
  2. Kahn, Managerial Quality, Team Success, and Individual Player Performance in Major League Baseball, Industrial and Labor Relations Review 46 (1993)
  3. Lieberman, Lau & Williams, Firm-level Productivity and Management Influence: A Comparison of U.S. and Japanese Automobile Producers, Management Science 36 (1990)
  4. Simonton, Greatness: Who Makes History and Why, Guilford Press (1994)
  5. Sackman, Erikson & Grant (1968), republished by Brooks Jr., The Mythical Man Month, Addison-Wesley (1995)
  6. Pfeffer & Sutton, Hard Facts, Dangerous Half-Truths & Total Nonesense; Profiting from Evidence-Based Management, Harvard Business School Press (2006)
  7. Lieberson & O’Connor, Leadership and Organizational Performance: A Study of Large Organizations, American Sociological Review 37 (1972)
  8. Pfeffer, The Ambiguity of Leadership, Academy of Management Review 2 (1977)
  9. Carroll & Hannan, The Demography of Corporations and Industries, Princeton University Press (2000)


Thomas Thurston is President of Growth Science International, LLC, a research firm that predicts if businesses will survive or fail. A former venturing professional at Intel, Thomas serves on multiple boards including the Revenue Capital Association. He holds an MBA, JD, was an Attorney for startups (OSB#044359) and was honored as a Research Fellow at the Harvard Business School.

India: Angel Investment Opportunities with MFIs


angel investors in indiaThis month I took a trip to India for 3 weeks to study the microfinance industry.  MFIs in India are in a position where they are unable to collect savings due to government regulation, so they rely on private equity as a way to raise the capital to fund loans. Currently, the microfinance industry is going through a small crisis in India due to threats of increased government regulation, but many MFIs are still looking for funding to grow their business.  Some MFIs are even expanding their business by offering larger loans to clients that have completed several successful loan cycles and are now ready for more capital or to new clients that have SME-sized businesses.  The SME segment of the market in India is relatively un-serviced by commercial banks.  MFIs offer loans to micro-entrepreneurs and banks offer loans to large businesses, but many small and medium sized enterprises are left without access to substantial funding.  These businesses are often referred to as the “missing middle” by industry experts.  Many MFIs are expanding their models to service these “missing middle” clients and have become very successful in this segment. 

I spoke with several players in the microfinance industry in India, and the main focus for most organizations is raising capital in a way that will grow the business without sacrificing the social mission.  There have been a few big players in the industry that have taken private equity capital and have had to raise interest rates and change the organization’s mission in order to answer to investors.  Many MFIs are looking for an alternative investment, such as patient capital, in order to grow the business while maintaining the social impact.  Some MFIs have turned to angel investors from the US as an alternative to private equity.  The angel investor community is not strong in India, but there are several angel investors from the west who have chosen to invest in India.  Angel investors offer MFIs a smaller amount of capital than a traditional PE firm, but demand a more reasonable return (20-25%), and a more hands-off approach to managing the business. 

Overall, there are many opportunities for angel investment in India.  In the MFI industry alone, there are many exciting opportunities to invest in organizations that have a strong and developing client base, grow at 50% or more each year, are expanding to give loans to SMEs, and have highly educated and experienced leadership.  Angel investors that want to make a difference in a developing country by investing in organizations that create jobs and livelihoods while also earning an adequate return on investment should look into the MFI investment opportunities in the growing markets of India.  

Ask an Angel: How do I become an Angel Investor?


angel investorThe following excerpt is from an Angel Capital Association article on December 21, 2010.  The full article can be found at the Angel Capital Education Foundation website


December 21, 2010

We asked three experienced angel investors, Jean Hammond of Hub Angels Investment Group, Launchpad Venture Group, and Golden Seeds, all located in the Boston area; Bob Goff, founder and chairman of Sierra Angels of Incline Village, NV and recipient of the Hans Severiens Award; and Steven Mercil of RAIN Source Capital in St. Paul, MN and lead instructor of the Power of Angel Investing, to talk about the what, why, and how of becoming an angel investor.

ACEF: Just to level set, why do people get into angel investing?

JH: There are lots of rational reasons. Early stage equity investing done directly is a good asset class. Done right, this asset class can out-perform other things. You get to use your smarts, your Rolodex, and your ability to interact with other smart people to the benefit of your investment. You know the person you are investing in. It is local. It is creating jobs right in your neighborhood. There is the sense of being there and doing the right stuff. All of those things make a combination of rational, economic, and morale good sense.

For me, the working with smart people and the energy from the smart entrepreneurs is a blast.

ACEF: So how do people figure out if they want to be an angel investor or not?

SM: We get questions from investors about how to become involved with angel investing almost every week. Most of our inquiries are people who have made money and want to leave some kind of legacy and pass their experience and knowledge on to someone else as well as make an ROI. They want to help an entrepreneur grow a business and experience the challenges. They know this is important work.

First, they need to be an accredited investor according to the Securities and Exchange Commission.

JH: Assuming that's the case, there are three basic paths for potential angels that I've seen. One is to have been an entrepreneur and internalized the receiving of investments process to the extent that you now feel comfortable being on the other side.

The second is to go and see how other people do it and shop for an angel group that works for you. This works best where there is more than one angel group and existing activity. Many times people come as guests to angel group meetings. They listen to other people talk about the decision to be an angel at a fairly high level and then down to more nuances.

The last path is more like an apprenticeship. Find someone who is doing angel investing-maybe someone who is blogging or is around your area-who is willing to have you tag along.

ACEF: Angel investing takes time as well as money.

SM: That's right. If you are going to be an angel investor, you have to decide how much time you can commit to this activity. If you don't have the time to be involved, if you want to invest passively, then invest through a professional venture capital manager.

BG: For general education on entrepreneurship and angel investing, we suggest people visit the Kauffman Foundation, Angel Capital Association (ACA), and ACEF Web sites which contain a wealth of valuable information. We also encourage all new Sierra Angels members to participate in a Power of Angel Investing seminar, preferably in their first year.

SM: I also steer people to the ACEF and the ACA sites. If they don't know much about angel investing, I highly recommend they attend one of the Power of Angel Investing (PAI) programs. Almost every time I've taught a course, there is a percentage of audience that has not been familiar with angel investing at all.

JH: We are doing classes here in the Boston area that will include a session on "so you want to be an angel." This will tell participants whether they want to be an angel and what they feel comfortable with.

SM: I also recommend that a person think about the kinds of companies-industry, stage, and location-they like to deal with and how much of their net worth they are willing and able to put at risk.

ACEF: Let's talk about risk. Angel investors seem to have a tolerance, almost an appetite for risky deals.

BG: Investing in any early stage businesses is inherently highly risky. Within an asset allocation context, this segment should generally represent no more than a single digit percentage of net worth (except, perhaps, in special situations). However, when done well and right it can be a highly rewarding activity.

JH: I'm of the opinion that people have an understanding of their own risk profile that helps them figure out whether or not they should be an angel investor and how early a stage of angel investor they want to be. I also think that understanding doesn't come from an extremely rational place.

The other day I heard myself saying that super-early stage angels are born not made. The list of people who like really early stage investing is small.

By their nature, lots of angel groups tend to end up at the "mid-stage" of what is actually the early stage of a company. They skew toward what I would consider a stage of risk that is often equated with market entry stage. The company has something ready to sell and they have to find people to buy it. The reason groups end up a bit later than individual angels is that by the time a diverse set of people feel ready to write a check-the company is at a later stage.

SM: Often angels need to be prepared to make more than one investment in the company. They need to assess whether they can create a viable portfolio within the limits of the time and money they have to invest.describe the image

Investors attend Invest Southwest Capital Conference 2010


investor conference
Invest Southwest Capital Conference December 8-10, 2010


Invest Southwest is the premier capital conference in Arizona and the Southwest. Since 1992, this event has connected the region’s most promising ventures with knowledgeable investors. On December 8–10, 2010, investors and venture capitalists from across the country will gather at the Four Seasons Resort Scottsdale at Troon North in Scottsdale to see the “Best of the Southwest” present their business plans and investment opportunities. These companies are ready for investment, and have participated in a competitive application process and an extensive mentoring period in anticipation of their conference presentation.

The event also includes an investor seminar, an internationally known keynote speaker, and presenting company exhibits and interactive sessions. For accredited investors only.

Here are some videos of conference sponsors and participants talking about why Invest Southwest is important for Arizona venture capital and entrepreneurship.

To register for the conference (accredited investors only) go to

The Angel Investor Market Q1/Q2 2010

angel investorFrom the Center for VentureResearch at the University of New Hampshire:

Market Size

The angel investor market in Q1,2 2010 showed signs of stabilization since the 30% market  correction in the second half of 2008 and the first half of 2009. Total investments in Q1,2 2010 were $8.5 billion, a decrease of 6.5% over Q1,2 2009. However, a total of 25,200 entrepreneurial ventures received angel funding in Q1,2 2010, a 3% increase from Q1,2 2009, and the number of active investors in Q1,2 2010 was 125,100 individuals, a drop of 11% from Q1,2 2009. The decline in total dollars, coupled with the small increase in investments resulted in a smaller deal size for Q1,2 2010 (a decline in deal size of 9% from Q1,2 2009). These data indicate that while angels remain committed to this investment class they do so with a cautious approach to investing. Angels are committing fewer dollars in more deals, a result of the lower valuations. While the market exhibited a stabilization from Q1,2 2009, when compared to the market correction that occurred in 2008, these data indicate that the angel market appears to have reached its nadir in 2009.


Angels have decreased their appetite for seed and start-up stage investing, with 26% of Q1,2 2010 angel investments in the seed and start-up stage, marking a steady decrease in the seed and start-up stage that began in 2008 (45%) and 2009 (35%), and it is the smallest percentage in seed and start-up investing for several years. This decline was reflected in an increase in postseed/start-up investing with 56% of investments in this stage.

Historically angels have been the major source of seed and start-up capital for entrepreneurs and this declining interest in seed and start-up capital represents a significant change in the angel market. Without a reversal of this trend in the near future, the dearth of seed and start-up capital may approach a critical stage, deepening the capital gap and impeding both new venture formation and job creation. This change in investment behavior is likely an indication of both a need to increase investments in existing portfolio companies in order for these portfolio companies to survive the recession and an extended exit horizon. Expansion stage investing (14%) remained unchanged. New, first sequence, investments represent 46% of Q1,2 2010 angel activity, a decline of 12% in the last year.

Sector Analysis

Healthcare Services/Medical Devices and Equipment accounted for the largest share of investments, with 24% of total angel investments in Q1,2 2010, followed by Biotech (20%), Software (12%), Industrial/Energy (11%), which reflects a continued appetite for green technologies, Retail (9%) and Media (5%). Retail and Media have solidified their presence in the top six sectors, mainly due to a continued interest in social networking ventures.

Deals by Sector: Healthcare (24%), Biotech (20%), Software (12%), Industrial/Energy(11%), Retail (9%), Media (5%)

Latent Angels

If the angel market is to achieve sustainable growth there needs to be a reasonable augmentation in active investors, and thus, level of participation is an important consideration. While the number of angel organizations, and individuals that are members of organized angel groups, is increasing, there is a significant percentage of latent angels (individuals who have the necessary net worth, but have not made an investment). In Q1,2 2010, 65% of the membership in angel groups was latent angels, which is an increase from 2009 (54%) and 2008 (36%). This significant percentage of latent investors indicates that while many high net worth individuals may be attracted to angel groups, they have not converted this interest into direct participation. This increase in latent angels may be the result of the longer exit horizon and in general be indicative of the lack of seed capital and the need for research to move the latent angel to the active investor.

Yield Rates

The yield (acceptance) rate is defined as the percentage of investment opportunities that are brought to the attention of investors that result in an investment. In Q1,2 2010 the yield rate was 12%, continuing a stabilization in yield rates that began in 2008 (10%) and continued in 2009 (14.5%). This yield rate indicates a cautious approach to investing, reduces the concern of an unsustainable investment rate, but also reflects an increased difficulty for entrepreneurs to secure angel funding.

Women and Minority Entrepreneurs and Investors

In Q1,2 2010 women angels represented 18% of the angel market. Women-owned ventures accounted for 11% of the entrepreneurs that are seeking angel capital and 14% of these women entrepreneurs received angel investment in Q1,2 2010. Thus, while the number of women seeking angel capital is low, the percentage that receives angel investments is in line with the overall market yield rate. Minority angels accounted for 4% of the angel population and minority-owned firms represented 6% of the entrepreneurs that presented their business concept to angels. The yield rate for these minority-owned firms was 23%, which for the third straight year is in line with, or higher than, market yield rates. However, the small percentage of minority-owned firms seeking angel capital is of concern.

The Center for Venture Research (CVR) has been conducting research on the angel market since 1980. The CVR’s mission is to provide an understanding of the angel market through quality research. The CVR is dedicated to providing reliable and timely information on the angel market to entrepreneurs, private investors and public policymakers.

The response rate for this survey was 37%. 

Upcoming Thunderbird Angel Dinner November 17th


angel investor
Register today for the next Thunderbird Angel Network Dinner on Wednesday, November 17th!

Since the Thunderbird Angel Network was recently launched in October, the member dinners are currently open to non-members.  We believe that investors interested in becoming members of the TAN may attend one meeting as a non-member before joining. Only accredited investors may attend the TAN meetings. For information on the definition of an accredited investor, please see the Investor Fact Sheet located on the Investor section of our website.

The next TAN dinner meeting will be held Wednesday, November 17th at the Thunderbird School of Global Management campus. The networking reception will begin at 5:30 p.m. and dinner will begin at 6:00 p.m. Following dinner, the due diligence team will present and then the new companies will present.  The registration fee for the dinner meeting is $40.00.

New companies seeking investment will present at the November 17th dinner:

  • Companies to be announced by November 14th

To reserve your place and make your payment for this dinner, click here and you will be redirected to a secure payment link.

The next scheduled dinner meeting for the Thunderbird Angel Network is January 20, 2011.

Difference Between Venture Capitalists and Angel Investors


venture capital
When an entrepreneur is ready with a business plan that he or she has researched, prepared, and is confident will be successful, the next step is to find funding.  The funding should start with the entrepreneur.  If you are not willing to put your own money and risk into your business, then why should anybody else?  Next, the funding should come from sources like family and friends (also known as FFF: family, friends and fools).  If your own family and friends aren't willing to invest in you, why should complete strangers? Finally, the next step is to find external funding from a bank, venture capitalists, or angel investors. Usually banks are unwilling to fund startup ventures that don't have 2-3 years of financial statements due to the high level of risk, and banks are especially risk adverse and not open to investing in small business during a recession. That leaves two 2nd round funding choices for entrepreneurs: venture capitalists and angel investors.  So, what's the difference?

Angel investors are wealthy individuals who help entrepreneurs during the startup phase by providing seed capital, which is the capital that is required and utilized in starting and growing a business. An angel investor is more like your friends, family or fools than a bank or venture capitalist because an angel investor is more likely to give importance to the entrepreneur than the business model. Angel investors are usually entrepreneurs themselves and they like to help upcoming entrepreneurs, not only by providing the capital but also by mentoring. 

A venture capital fund also invests in companies in the startup phase of the business, but can be defined as a pooled investment that uses the money from third-party investors, such as investment banks or wealthy individuals, to invest in business projects.  A venture capital firm is an investment company that invests its shareholders' money in startups and other risky but potentially very profitable ventures.

Difference Between Venture Capitalists & Angel Investors:
seed capital

  • In a startup business the angel investor comes into the picture earlier than the venture capitalist. Angel investors are usually the 1st or 2nd round of funding (seed or concept stage), while venture capitalists are usually the 3rd or 4th round of funding (growth stage).
  • Angel investors are individually wealthy whereas venture capital is usually pooled funds or an investment firm.  Angel investors privately invest their own funds, while venture capital is usually a professionally-managed fund.
  • The amount of capital provided varies. Angel investors provide capital starting from $25,000 to $1M (approximate amounts depending on the deal). Venture capitalists generally do not consider deals less than $1-2M. 
  • The process of obtaining funds is less rigorous in the case of angel investors, and very rigorous in the case of venture capitalists.
  • The terms and conditions put forth by venture capitalists are generally more stringent than angel investors.
  • Angel investors are sometimes said to invest "emotional money," while venture capitalists are said to invest "logical money". 
  • Angel-funded startup companies are less likely to fail than companies that rely on other forms of initial financing.

Despite their differences, many angel investors work with venture capitalists to find the best investors for great startup companies. Check out the directory on our website for links to other angel investing groups and venture capital firms.

Are Angel Investors Angels or Demons?


angel investorAccording to the following article from the Economist, there have been allegations that "super angels" have been banding together to keep venture capital firms out of the startup business and to lower startup valuations.  This conspiracy theory in the startup industry has recently caused apprehension in investors and entrepreneurs.  

Read the full article from the Economist below:

"I WAS at Bin 38 and all I got was this lousy valuation", read the message on Dave McClure's T-shirt at a conference in San Francisco this week. The boss of 500 Start-ups, a fund that provides seed capital to entrepreneurs, Mr McClure had the shirt designed to ridicule an accusation that he and several other financiers have been colluding.demon investor

The charge was made by Michael Arrington, the founder of a blog called TechCrunch (which was sold to AOL this week). His claim has turned a spotlight onto "super angels", who run funds that invest in deals considered too small to be of interest to traditional venture-capital firms. In a blog post Mr Arrington said he recently gatecrashed a meeting at Bin 38, a San Francisco wine bar, at which he claimed a bunch of super angels were gathered "Godfather-style" to discuss things like how to counteract rising valuations of young firms and how to keep big venture funds out of deals.

"Angelgate", as it has been dubbed, sparked a furore in the start-up world. In an expletive-laden response on his own blog, Mr McClure called Mr Arrington's claim of conspiracy "bullshit" and said the angels' meeting focused on issues like how to boost access to start-up capital and how to get non-tech firms more interested in buying tech businesses.

It is hardly unusual for investors in Silicon Valley to compare notes. And Mr Arrington has yet to provide hard evidence of collusive behaviour. But the episode has exposed divisions in angels' ranks. Ron Conway, a well-known investor in tiny firms, has privately castigated some of his fellow super angels for having overinflated egos and for appearing too keen to make a fast buck.

All this matters because their clout has been growing. "Angelgate is a bit of a validation of super angels' influence," says David Hsuof the Wharton School. And competition is certainly getting stiffer. Established firms have rediscovered their appetite for seed funding: Greylock Partners, a well-known venture firm, this week said it had launched a $20m seed fund. That will make heavenly returns even harder to come by.

Source:  Economist; 10/2/2010, Vol. 397 Issue 8702, p82-82, 1/2p


Angel Investors Investing Less?


investing lessUNH Center For Venture Research: Angel Investors Flee Seed and Start-Up Stage in First Half of 2010

October 26, 2010

According to the Angel Market Analysis done by University of New Hampshire's Center for Venture Research, angel investors committed fewer dollars in more deals in the first half of 2010, the lowest level in several years.  This trend could soon impact new ventures and job creation.

Total investments in the first half of 2010 were $8.5 billion, a decrease of 6.5 percent over the first half of 2009.

A total of 25,200 entrepreneurial ventures received angel funding in the first half of 2010, a 3 percent increase from the same period in 2009, and the number of active investors in the period was 125,100 individuals, a drop of 11 percent from the same period in 2009. The decline in total dollars, coupled with the small increase in investments, resulted in a 9 percent decline in deal size for the first and second quarters of 2010 compared with 2009. 

“These data indicate that while angels remain committed to this investment class they do so with a cautious approach to investing. Angels are committing fewer dollars in more deals, a result of the lower valuations,” said Jeffrey Sohl, director of the UNH Center for Venture Research at the Whittemore School of Business and Economics.

“Historically angels have been the major source of seed and start-up capital for entrepreneurs, and this declining interest in seed and start-up capital represent a significant change in the angel market. Without a reversal of this trend in the near future, the dearth of seed and start-up capital may approach a critical stage, deepening the capital gap and impeding both new venture formation and job creation. This change in investment behavior is likely an indication of both a need to increase investments in existing portfolio companies in order for these portfolio companies to survive the recession and an extended exit horizon,” Sohl said.

Healthcare services/medical devices and equipment accounted for the largest share of investments, with 24 percent of total angel investments in Q1 and Q2 2010, followed by biotech (20 percent), software (12 percent), industrial/energy (11 percent), which reflects a continued appetite for green technologies, retail (9 percent) and media (5 percent).  Retail and media have solidified their presence in the top six sectors, mainly due to a continued interest in social networking ventures.

The Center for Venture Research has been conducting research on the angel market since 1980. The center’s mission is to provide an understanding of the angel market and the critical role of angels in the early stage equity financing of high growth entrepreneurial ventures. Through the tenet of academic research in an applied area of study, the center is dedicated to providing reliable and timely information on the angel market to entrepreneurs, private investors and public policymakers. For more information visit or contact the center at 603-862-3341.


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