The Angel Investing “Market” Circa February, 2009

4 Feb

2/4/2009

I attended the combined Angel Capital Association and Angel Capital Education Foundation BOD meeting last week in Atlanta. (I sit on the ACA BOD.) Combined, there are 15 angel group leaders from 12 states on both Boards.

As I posted previous November and December “market” updates about national angel investing trends, I thought it timely to add a new 2009 posting.

The below information is a national review based on my conversations with the individual members of the combined Boards last week as well as subsequent conversations with members of other angels groups across the USA.

1.) Valuation is king. Valuations continue to decline across the board from CA to NC. These valuations are driven by market forces and are becoming quite a shock to many companies looking for first time capital. I sense a bit of shellshock from some companies due to the short window in which valuations have dropped. Many companies are claiming that they will opt to “bootstrap” until valuations improve or they can hit milestones to improve their valuations. That’s fine with most angels, most of whom are not obligated to invest in a similar fashion as VC firms. If you can “bootstrap”, do it. We’ll be around when you are ready.

2.) Angel investors are not “fleeing the coop” as some NYT articles would have many believe. In fact, this “doom and gloom” topic never came up once last week at the combined BOD meeting.

3.) Angels are not complaining about their equity “portfolios”. This topic is media driven and a convenient excuse for some investors who might have been thinking of angel investing.

4.) Companies, who six months ago would have been able to raise VC capital, are now on the road trying to syndicate from multiple angel groups across state lines. This interest in syndication seems to be driven by the current lack of institutional capital (VC) and by the organized syndication process which many angel groups across the nation have created in the last 2-3 years.

5.) A proliferation of national (GoBig, etc) and local self proclaimed angel networks have anointed themselves the new “champions” of angel investing. Often, this ploy is used as a business development tactic or a tactic to sign up accredited investors for other purposes. My advice to companies raising capital from angel investors is to complete your due diligence and make sure that the angel group, or individual angel investor, is an active early stage investor and, at the least has 3+ angel investment deals (at a minimum) under their respective belts.

6.) Deal flow increased dramatically in 4th Q, 2008 and the beginning of 1st Q, 2009. It has now flattened out with a lot of “wait and see” from many companies. My advice to companies is to get out into the market now and talk to as many qualified angel groups as possible (depending on your resources). We want to hear from you.

7.) The “fee to present” to angel groups topic has come up again. 95% of angel groups do not charge fees. Do a double take if any angel group or proclaimed angel investors asks for a fee. Again, I advise companies seeking capital to do your due diligence.

8.) State and local governments are now beginning to understand the importance and impact that angel groups and individual angel investors can have in funding young companies to stimulate job creation and community growth. Bravo.

9.) Numerous angels and angel groups (mine included)  lived through the 2001-2003 technology meltdown. They are still active in this  current  “down” cycle because they learned from the previous cycle, they adapted and they are now pretty comfortable that they can survive, and even prosper, through this cycle.

I’ll be back next week with a post on an educational angel investing seminar that I am attending this week.

 

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