State of the Angel Investing Market, Circa October, 2009

1 Oct

A couple folks asked me recently to give an update on angel investing both in Georgia and nationwide as I see it. The last post I did on this topic was in February, 2009. My, how time flies. I’ve recently left my position as managing director at the Atlanta Technology Angels but I still remain on the Board of Directors at both the Atlanta Technology Angels and the  Angel Capital Association. I continue to speak to angel investors all across the USA (and hear from UK, much of Europe and New Zealand and Australia) so my information should remain timely and up to date. In this post, I’ll probably talk Georgia-specific but also mention some national trends.

Please note that all thoughts and comments on this blog are mine and do not reflect the thoughts or comments of any outside organization.

1.) Current Investing

Much of the current investing activity in Georgia is going towards companies previously funded in the 2005-2008 timeframe. Very few new companies are getting funded by angels in late 2009. I know of a couple of new term sheets out to new companies in ATL and I know of a few companies that have just completed long term financing rounds, but I hear the “raise” for new companies is taking more time and is a source of frustration. Here’s why I think this is happening:

- Angel investors, depending on the individual and/or entity,  have had a reduction of assets/liquidity due to the equity crash of September, 2008. This reduction may be 5%-15% or it may be 50%. The 5%-15% ‘ers are still looking, the 50% ‘ers are gone from the market. However, the 5%-15% ‘ers are still cautious (despite the 60% reflation of the S&P/Dow) for another downturn. So, many angels are protecting their current early stage investments by reinvesting into current portfolio companies to make sure these companies can last another 12-18 months. On a national basis, I’m seeing this same tactic across the board. The only exceptions to this are angel groups that have raised funds($2m-$5M) or groups in very active markets such as San Francisco, Los Angeles, or a very few NE markets. (More on angel funds later.)

- The angel market is in a state of flux in Georgia. New leadership at the Atlanta Technology Angels, the gradual withdrawal of Imlay Investments from the market, the addition of a Y-Combinator play (Shotput Ventures), the slips and slides of creating new angel groups in other Georgia markets, and  Angel Lounge trying to find its voice all have combined to make life both exciting but somewhat confusing for entrepreneurs looking for funding.

-No Exits. I’ve been saying for a couple of years now that if there are no positive exits (or conversely, failures/bankruptcies) for current angel investors, the angels cannot recycle the previously invested cash they receive from a postive sale, M&A or IPO. And, no exits mean no “new” angels (or very few). If there are no exits, no recycled capital and no new angels, a stagnant economy is unintentionally created. Sound familiar? Yep, look around you at the economy. All the new money is from the Fed. How to help this situation? See #3 and #5.

-The era of Free Money……is over. See #2.

2.) Valuations

Valuations seem to have gone way off course.  They are at stubbornly high 2007 levels–and have seen an increase in last 3-6 months. It seems as if there is no in between for the companies raising cash.  Believe me, this is as frustrating for the angel investors as it is for the entrepreneurs.

3.) Angel Group Syndication

If you need to know what angel group syndication is, you’d better learn. If you don’t know that there are angel groups in other states willing to listen to GA companies, you’d better learn.

4.) Deal Flow

Deal flow has lessoned considerably this (3rd) quarter. However, there is a backlog of new companies that many angel groups are working through. I imagine that with the release of Capventure companies Tuesday night, Atlanta will see an uptick in dealflow for the short term.

5.) Tax Credits for Georgia Angel groups

Many of you know that a tax credit for Georgia early stage investors has been a long term project of mine for 5 years. Let me tell you, it hasn’t gotten any less important for me or for the State of Georgia. The reason North Carolina/RTP is cleaning our clock in funding young tech companies? Tax Credits. North Carolina has had tax credits since 1996 and now has two NEW angel funds of $5M each–all due to tax credits. As soon as GA politicians and GA old boy networks learn that tax credits aren’t just for the favored few, the better off Atlanta/GA is going to be.

That’s all for now. Happy to answer questions, if any. More posts later in October.

 

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5 Responses to “State of the Angel Investing Market, Circa October, 2009”

  1. Sig Mosley October 1, 2009 at 8:34 PM #

    While it is true that Imlay Investments is going to stop doing new deals late next year, I am not sure that this is contributing to the current state of flux in the angel markets. We are still going to support our current deals until a liquidity event happens. We do currently have two term sheets out on new investments and will continue to evaluate new deals and make new investments if we find what we believe is a worthwhile deal.

  2. Knox Massey October 1, 2009 at 10:15 PM #

    Thanks, Sig. We know you’re not going away for good, but Atlanta/Georgia needs to put a process in place to *try* and support the angel community that you, Melanie and John have helped create. I think that this effort is, and has been, in the works…

  3. Sig Mosley October 2, 2009 at 2:40 AM #

    Knox, I agree with you that we need to put a process in place to support the angel community here.

  4. Adam Wexler October 2, 2009 at 2:46 PM #

    Great writeup, Knox. Considering Angel investors are not required to max out their funds like VC firms and investor assets/liquidity have been dramatically reduced, why can’t we begin to focus more on the Shotput Ventures model around town? Do they really need to exit the investor market entirely?

    Web startups don’t need nearly the money they required less than 10 years ago. $25k-$75k could do wonders for a number of companies trying to accelerate their development.

    As I mentioned at my CapVenture presentation, I’ve managed to spend less than $1,500 in over 25 months of Rank ‘em’s development to date. Although the current state has made us stronger moving forward, we know we can’t continue forever at the rate we’re developing.

    -Adam

    BTW, your link for angel group syndication is not working properly.

  5. Knox Massey October 2, 2009 at 11:58 PM #

    Thanks, Adam. Link fixed. The link is to the ACA directory of angel groups around the USA.
    As to your suggestion that angels should follow the Shotput/Y Combinator model—individual angels can choose where they wish to invest–because it’s their money!. If they prefer to only fund web apps or web based companies, that’s certainly their choice. Not every angel wants to do that. Also, angels are not exiting the market, it’s just tougher times these days and angels have to make more seasoned choices. Happy to chat in person if you’d like.

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