Current investment opportunities for angels may seem to be limited in this downtrodden economy. After all, there may be a wealth of entrepreneurs still seeking funding, but can the market support their ideas enough to make you money?
While it is true that a variety of considerations go into the decision-making process of funding a startup, the most significant is easily whether or not the investment will produce an attractive return. In this current global recession, it could be anybody’s guess.
The latest out of a recent survey by the Angel Capital Association (ACA) shows that a recession can make or break an investment. At the same time, some angel investors are viewing the current economic climate as the perfect time to move forward with certain opportunities. [1]
In fact, the average investment activity per group showed a decline by as much as nine percent in 2008 when compared with 2007 figures. Even with this dismal news, some angel groups actually increased investments as they recognized new opportunities during the recession. And, as the recession found its legs, predictions for 2009 changed showing a higher percentage of forecasted decreases in activity this year, while a higher percentage of investments also increased. [1]
Sounds a little confusing, right? To clarify, what is actually happening with angel investors around the world is that they are investing less money in each deal, but saying “Yes” to more deals. While it may not always make sense to the entrepreneur seeking the funds, it makes perfect sense to the angels seeking to diversify in a shaky market.
Overall, survey respondents reported that both the quantity and quality of their deal flows had increased in 2008. More than 43 percent of the crowd agreed with this assessment, while a little over 27 percent reported that their deal flow remained the same. Others varied in relation to quality and quantity, but the positive news is that activity is not something lacking in angel investing, regardless of the current economy. [2]
Other predictions for 2009 are holding strong as angel investors seem to be relatively optimistic. Of course, more than 50 percent of respondents believe that the credit crunch and current market status will remain relatively the same until 2010. This is not to say that there will not be money available for investments, but it could mean that the thought process involved in making an investment decision will reflect the pressures of the economy a little while longer. [2]
According to ACA Chairman John Huston, heightened selectivity by angels and venture capitalists has certainly amplified the financing challenges that young ventures are facing today, even with collapsed valuations. At the same time, those high capital efficient startups that are able to reach cash flow break even with just a few million dollars of investment are easily attracting capital. [3]
For angels that are seeking opportunities for significant returns, the opportunities do exist; you just may have to alter your methods for finding and evaluating the prospects. Overall, the market looks promising, especially if you can hold out for the recovery. And, if those high capital efficient startups come knocking, open the door and listen to what they have to say – it just could be your next investment talking.
Notes:
[1] Some Angel Investors See Opportunities in 2009, techjournalsouth.com
[2] Report: ACA 2009 Angel Group Confidence Report
[3] Angels make more but smaller deals in 2008, remain optimistic about 2009
* For series, references are published in the last installment of the series.
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