Investing can be a fickle thing; full of uncertainty and heart-pulsing ups and downs. For venture capitalists (VCs), an investment choice can make the difference between having a high powered job and losing one. For angel investors, the move is much more personal as angels invest their own money with no one to answer to but themselves.
The current state of the global economy has changed the landscape for all investors. While some see the current environment as a great time to invest, others have tightened their wallets to wait for greener pastures. VCs tend to fall into the latter category as many have opted to wait out the storm rather than dive right in on even the most promising of opportunities.
For VCs, the current activity has delivered some promise, although overall power as a player merely shadows what VCs once were. According to MidwestBusiness.com, VC investments were up for the quarter by 15 percent, while the actual number of deals completed was up 1 percent. Even with this positive movement, the full first six months of 2009 were still down 55 percent over the same period in 2008. [1]
This performance demonstrates that perhaps a few too many VCs got used to the prosperous growth of the first part of the decade and didn’t plan for a change in the climate. This poor planning has left many VCs out in the cold while angel investors are taking advantage of the opportunities waiting.
Case in point, the Oregon Angel Fund just closed its largest fund ever at $3 million. At only three years old, this fund gets half of its cash from individual angel investors. The remaining funding is provided by the Oregon Growth Account, which invests a portion of state lottery proceeds in Oregon-committed venture funds. [2]
Similar success has reached the southern portion of the United States as the Central Texas Angel Network (CTAN) is set to surpass its entire 2008 investment level this quarter. This group typically backs early-stage companies with small investments. With the five deals closed so far this year, the group has equaled the amount invested in nine deals in 2008. Randall Crowder, CTAN Executive Director says the volatile public market combined with lower valuations for nascent companies is generating greater deal flow. [3]
Why are angels still actively investing while VCs have become a shadow of their former self? It could have something to do with expectations. Most successful angels tend to be relatively realistic about the type of money they can earn on a deal. They also understand the ups and downs involved in a startup and how important it is to know the deal inside and out before signing on the bottom line. [4]
As the global economy inches toward a recovery, angels will continue to play a crucial role in ensuring markets achieve stability and new companies are set to breath new life into ailing segments.
Notes:
[1] VC Investments Improve in Second Quarter, But a Shadow of Former Self
[2] Angel fund closes largest round ever
[3] Angel investors pick up pace
[4] Fool’s Gold?
* For series, references are published in the last installment of the series.
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