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U.S. Angel Investors Retreating from Start Up Deals

Angel statue (Louise Docker/Wikimedia Commons)

(Louise Docker/Wikimedia Commons)

While angel investors made more deals in the first half of 2010, compared to 2009, the total dollar volume invested dropped, as did the percentage of funding for seed and start up stage financing. Nonetheless, a majority of the deals involved science-related companies. These findings appear in a report published by the Center for Venture Research at the University of New Hampshire in Durham.

Angel investors are financial entrepreneurs that seek to help other entrepreneurs get started, and in return seek higher returns than those found in traditional investments. Many angel investors help start-up companies bridge the gap between self-funding and the point and investment volume where venture capital takes over.

The report — “The Angel Investor Market in Q1Q2 2010: Where Have All the Seed Investors Gone?” — says 25,200 ventures received funding from angel investors from January through June 2010, a 3 percent increase compared to the same period in 2009. However, the number of investors dropped 11 percent to 125,100 and the total volume of investment dropped 6.5 percent to $8.5 billion, compared to 2009. Thus, fewer angels are investing fewer dollars in more deals than in 2009.

Science-related enterprises still remained favorites of angel investors, accounting for more than half (55%) of the deals in the first half of 2010. About a quarter (24%) of the deals involved companies in the health care services/medical devices category, while 1 in 5 deals (20%) funded biotech companies. Another 11 percent of the deals involved industrial and energy enterprises, which includes  green technologies.

About a quarter (26%) of the investments in the first half of 2010 went to seed and start-up funding, the very earliest stages of company formation. This percentage of early-stage investing represents another significant drop from 2009 (35%) and 2008 (45%). This withdrawal from early-stage investing marks a consolidation and shift from the angels’ traditional role as start-up funders.

Related: Financing Tips from Angel and VC Investors

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