Angel investors are back. That's according to an analysis by the Center for Venture Research at the University of New Hampshire which recorded an encouraging increase in investment dollars following a contraction in 2008 and 2009.
Total angel investments in the US during 2010 were $20.1 billion, a 14 per cent increase on 2009. Some 61,900 entrepreneurial ventures benefited from angel funding in 2010, eight per cent more than in the previous year, while the number of angel investors also rose slightly, reaching 265,400 individuals, a two per cent rise on 2009.
Crucially, these investments resulted in 370,000 new jobs being created – roughly six per investment.
Jeffrey Sohl, director of the UNH Center for Venture Research at the Whittemore School of Business and Economics, added that the increase in the total amount invested, coupled with the rise in the number of investments, meant that deal sizes also rose more than five per cent in 2010.
"These data indicate that angels have significantly increased their investment activity and are committing more dollars resulting from higher valuations," he said. "It appears that a cautious optimism to investing is taking hold."
Healthcare services and medical devices accounted for almost a third (30 per cent) of all total angel investments in 2010, followed by software (16 per cent), biotech (15 per cent), industrial/energy (eight per cent), retail (five per cent) and IT services (five per cent).
But angel investment remains a risky business. Bankruptcies accounted for more than a quarter (27 per cent) of the exits in 2010, with mergers and acquisitions making up a further 66 per cent of exits. Only about half of the angel exits were at a profit and annual returns for angel's exits (mergers and acquisitions and IPOs) were between 24 per cent and 36 per cent.
Less encouragingly, however, the headline figures hide the fact that investments of seed and start-up capital actually fell by four per cent in 2010. Less than a third (31 per cent) of investments went to fund new ventures.
"This decrease in seed/start-up stage and first sequence investing is of concern," Jeffrey Sohl said. "However, as existing investments move to an exit and thus reduce the need for follow-on investments, it is anticipated that angel capital will become available for new seed stage investments."