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Angel funding on the rise

on October 14, 2011 Source: Kauffman Foundation

Healthcare entrepreneurs looking for some additional funding may be getting some good news from the angel investment side of the aisle.

According to the Center for Venture Research at the University of New Hampshire, the angel investor market is on the recovery train in 2011. The Durham, N.H.-based CVR says that angel capital funding for the first two quarters of 2011 was 4.7 percent higher than it was in the same period in 2010.

That “stabilization” – the word used by academics at UNH – comes on the heels of an atrocious performance for angel investors in the second half of 2008 and 2009, when average funding capital was down 30 percent.

Some other key figures from the CVR/UNH study of angel funding for the first half of the year:

  • Total angel investing reached $8.9 billion in the first six months of 2011.
  • About 26,300 companies received angel funding for quarters one and two – that’s up 44 percent over the same timeframe in 2010.
  • The CVR says that healthcare services/medical devices and equipment took the lion’s share of angel cash, with 25 percent of total angel investments in Q1 and Q2 2011. Tracking behind the healthcare sector were industrial/energy (17 percent), biotech (14 percent), software (11 percent), media (8 percent) and retail (8 percent).
  • “Active” angel investors in the U.S. stayed about the same – at 125,000, from the first half of 2010 to the first half of 2011.
  • The average deal size so far in 2011 reached $338,400, slightly ahead of the $337,300 figure the CVR cited in the first two quarters of 2010.
  • Angels have taken a big bite into the seed and startup stage investing, with 39 percent of Q1 and Q2 2011 angel investments in the seed and startup stage. That’s a 13 percent upward spike in the seed and startup stage from the first six months of 2010.

Such stability is welcome in healthcare startup circles, but the climb back still remains a high one. The Center for Venture Research previously reported that U.S. angel investors invested $19 billion in 55,000 deals (about 35,000 small businesses) in 2008, with most of those investments in startup or very early-stage companies. Approximately 225,000 angel investors cut a check to a U.S. company in 2008, the CVR reports.

Researchers at CVR/UNH are taking great pains to remain realistic about any fragile recovery in the angel funding sector. But they do come out and use the “growth” word, albeit with a dose of caution.

“These data indicate that angels remain committed to this investment class and at slightly higher valuations than in 2010. While the market exhibited a stabilization from Q1 and Q2 2010, when compared to the market correction that occurred in 2008, these data indicate that the angel market appears to have reached its nadir in 2009 and has since demonstrated a slow recovery,” said Jeffrey Sohl, director of the UNH Center for Venture Research at the Whittemore School of Business and Economics, in a statement.

So we’ll call it good news for startup owners, especially healthcare entrepreneurs who are just getting rolling. As Sohl points out, angel investors are a big source of financing for brand new business owners. “Historically angels have been the major source of seed and startup capital for entrepreneurs, and this return to seed and startup investing is an encouraging sign. While there remains a need for seed and startup capital and a capital gap in this stage, if the return to seed and startup investing continues, this will signify an improvement in both new venture formation and job creation,” Sohl adds.

Hopefully, the healthcare sector will see the first six months of the year acting as a springboard for the second six months – a trend that is not only welcome for entrepreneurs, but actually expected (on a moderate pace) by the CVR.

Let’s keep our fingers crossed.

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