Investments by U.S. angel investors increased by 15 per cent to $12.7 billion in the first half of 2006 over the same period in 2005, with health care services and medical equipment the sectors of choice.
Research from the Center for Venture Research at the University of New Hampshire found that while the amount invested has increased, the number of entrepreneurial ventures receiving angel funding in the first half of 2006 fell by six per cent compared to the same period last year, with a total of 24,500 ventures attracting investment.
But the number of active investors in the first half of 2006 was 130,000 individuals, three per cent more than in 2005.
"These trends indicate that while the total dollar size of the market and the number of investors were comparable to Q1Q2 2005, this increase is offset by the slight decline in the number of investments," said Jeffrey Sohl, director of the Center for Venture Research.
"Reflecting this trend is the increase in the average deal size by 22 per cent over the first half of 2005," he added.
Healthcare services attracted more than a quarter (27 per cent) of total angel investments with medical devices equipment and software ventures taking a further 18 per cent.
Biotech, retail, media and IT services garnered close to 10 per cent each, but there was a significant decline after the two largest sectors. The remaining investments were approximately equally weighted across high tech sectors, with each having three per cent to five per cent of the total deals.
"This market level sector diversification indicates a robust investment pattern. Since the angel market is essentially the spawning grounds for the next wave of high growth investments, this sector diversification provides an indication of investment opportunities that will be available for later stage institutional investors," Sohl said.
Angels continue to be the largest source of seed and start-up capital in the United States, with 40 per cent of the first half of 2006 angel investments in the seed and start-up stage. This preference for seed and start-up investing is followed closely by post-seed/start-up investments of 45 per cent .
"This increase in post-seed/start-up investing continues a trend that began in 2004 and represents a significant increase in historical levels. While angels are not abandoning seed and start-up investing, it appears that market conditions, the preferences of large formal angel alliances, and a possible slight restructuring of the angel market are resulting in angels engaging in more later-stage investments," Sohl added.
New, first sequence, investments represent two-thirds of first half 2006 angel activity, indicating that some of this post-seed investing is in new deals.
"This shift in investment strategies toward post-seed investments reduces the proportional amount of seed and start-up capital. This restructuring of the angel market has in turn resulted in fewer dollars available for seed investments, thus exacerbating the capital gap for seed and start-up capital in the United States," Sohl said.