The NYTimes details a report by the Center for Venture Research showing a 26% decline in angel investment in start-up companies in 2008 as compared to the previous year. The number of deals funded only dropped 3% - meaning the amount invested per deal declined. The percentage of start-up ideas pitched to angel investors that received funding also dropped to 10% in 2008 from a high of 23% in 2005.
A bit of background from the article...
Despite the fact that angels financed nearly as many deals as the year before, some entrepreneurs may feel it has become much more difficult over the last few years to raise their first round of capital. That is because the percentage of start-up ideas pitched to angels that results in an investment has dropped to 10 percent last year, from 23 percent in 2005.
Angels invest in start-ups when they are little more than an idea, getting them off the ground so they can eventually raise venture capital. They invest small amounts, usually between $10,000 and $1 million. Angels invest their own money as opposed to other investors’ money, as venture capitalists do, so they are more acutely impacted by market fluctuations than venture investors.
Start-up valuations are also falling...
Start-up valuations are also down — the median valuation of start-ups seeking seed capital fell 25 percent from the third to the fourth quarter of 2008, according to Angelsoft – so investors can put in less money for the same stake in a company.
In short, the number of angel investments has fallen slightly, while the actual amount invested has fallen by more than a quarter according to the report. Start-up companies seeking initial funding from angel investors should expect a much tougher environment in 2009 for raising the amount of capital they need to get off the ground.
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