Moderate Recovery Continues in 2012 for U.S. Angel Investor Market

The angel investor market in 2012 continued the upward trend started in 2010 in investment dollars and in the number of investments, albeit at a moderate pace, according to the 2012 Angel Market Analysis released by the Center for Venture Research at the University of New Hampshire.

Total investments in 2012 were $22.9 billion, an increase of 1.8 percent over 2011 when investments totaled $22.5 billion. A total of 67,030 entrepreneurial ventures received angel funding in 2012, an increase of 1.2 percent over 2011 investments, and the number of active investors in 2012 was 268,160 individuals, a decline of 15.8 percent from 2011.

“The small increase in both total dollars and the number of investments resulted in a deal size for 2012 that was virtually unchanged from 2011. These data indicate that while fewer angels were active investors in 2012, those who did invest have increased their individual investments substantially, from $70,690 in 2011 to $85,435 in 2012, an increase of 20.9 percent,” according to Jeffrey Sohl, director of the UNH Center for Venture Research at the Peter T. Paul College of Business and Economics.
“It is possible that given the robust returns in the public equity markets, some angels may have reallocated their portfolios and reduced their angel investing activity but those angels that continued to invest remained quite active,” Sohl said.

Software remained the top sector position with 23 percent of total angel investments in 2012, followed by healthcare services/medical devices and equipment (14 percent), retail (12 percent), biotech (11 percent), industrial/energy (7 percent), and media (7 percent).

Angels decreased their investments of seed and start-up capital, with 35 percent of 2012 angel investments in the seed and start-up stage, down from 42 percent in 2011 and matching seed and start-up investing in 2010 (31 percent). Angels also exhibited a decreased interest in early stage investing with 33 percent of investments in the early stage, down from 40 percent in 2011. Expansion financing exhibited a significant increase to 29 percent of deals, up from 15 percent in 2011.
“Investment activity was evenly divided between new, first sequence, investments and follow-on investments, the same as in 2011. This decrease in seed/start-up stage is of concern since that is the stage of need for our nation’s entrepreneurs,” Sohl said.

Angel investments continue to be a significant contributor to job growth with the creation of 274,800 new jobs in the United States in 2012, or 4.1 jobs per angel investment. The average angel deal size in 2012 was $341,800 and the average equity received was 12.7 percent with a deal valuation of $2.7 million.

Silicon Valley Venture Capitalists’ Confidence Up for Third Consecutive Quarter

The Silicon Valley Venture Capitalist Confidence Index® for the first quarter of 2013, based on a March 2013 survey of 30 San Francisco Bay Area venture capitalists, registered 3.73 on a 5 point scale (with 5 indicating high confidence and 1 indicating low confidence). This quarter’s index is up from the previous quarter’s confidence reading of 3.63, and marks the third consecutive upward move in VC confidence.

This is the 37th consecutive quarterly survey and research report, providing unique quantitative and qualitative trend data and analysis on the confidence of Silicon Valley venture capitalists in the future high-growth entrepreneurial environment. Mark Cannice, department chair and professor of entrepreneurship and innovation with the University of San Francisco (USF) School of Management, authors the research study each quarter.

In this latest report, Cannice finds a depressed exit market for venture-backed firms in the first quarter of 2013 was not enough to reverse the positive overall trend in confidence of Silicon Valley venture capitalists. For example, Bill Reichert of Garage Technology Ventures shared, “We’ve waited through the chilling effect of the troubled IPOs of Zynga and Groupon. There is less frothiness in social, local, mobile, and gaming. Calmer heads seem to be prevailing, and the overall market is up.” Mark Platshon of Birchmere Ventures struck an optimistic chord saying, “The Valley will always reinvent itself or change to build new approaches.”

However, not all venture capitalists who responded to the Q1 survey agreed with the view of a more munificent environment. For example, Igor Sill of Geneva Venture Management argued, “Despite signs of an improving economy and new found stock market optimism, I sense considerable concern over the impact of governmental policy on the venture capital industry.” Bob Ackerman of Allegis Capital added, “While innovation is alive and well, costs are up, staffing is a major challenge, and early-stage capital formation is clearly under pressure in some sectors of the market.”

Professor Cannice concluded the report with, “While the forces of creative destruction (Schumpeter) apply to the industries that finance innovation and new venture creation as well as to the enterprises that are financed, the impact of these structural shifts on the overall productivity and competitiveness of wide swaths of American business is difficult to predict.”

Complete Silicon Valley Venture Capitalist Confidence Index® for the first quarter of 2013.

Venture capital firms that invest in women-led businesses see positive returns

Venture capital firms that invest in women-led businesses see positive returns, says a new report issued today by the U.S. Small Business Administration (SBA) Office of Advocacy. The report, called Venture Capital, Social Capital, and the Funding of Women-led Businesses, focuses on women entrepreneurs' access to equity funding and how social networks influence venture capital firms' decisions to invest. In the report, the authors, Joy Godesiabois and Lawrence Plummer, find that social capital ("who you know and how you know them") affects funding of women-led firms in different, sometimes conflicting ways.

Venture capital firms tend to invest with familiar social networks that may not include women entrepreneurs. Yet this study shows that when venture capital firms do invest in women-led businesses, they generally improve their bottom line. And venture capital firms that regularly invest as a group in the same businesses tend to invest more often in businesses led by women entrepreneurs, according to the report.

"As investors look for new opportunities, and as we focus on ways to grow our economy, we should look to women entrepreneurs for a good share of new growth," said Dr. Winslow Sargeant, Chief Counsel for Advocacy. "Policies that encourage venture capital networks to be more inclusive will create the environment for new high-growth innovative businesses."