Region bucking national trend as ‘angel’ investment remains strong

Although the number of “angel investors” nationwide has increased, the amount of money they are will
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Although the number of “angel investors” nationwide has increased, the amount of money they are willing to risk has decreased, according to a study released by the Center for Venture Research at the University of New Hampshire.

Angel investors — accredited investors who put up individual fortunes — gave $11.9 billion in private investment to 24,000 companies in the United States in the first half of 2007, down 6 percent from the first half of 2006, according to the study.

The number of active investors, however, was 140,000, up 8 percent from the same period in 2006.

“Reflecting this trend is the decrease in the average deal size by 4 percent over the first half of 2006 and a [10 percent] increase in the number of investors per deal,” wrote Center for Venture Research Director Jeffrey Sohl.

Peter Pritchard, who oversees the Tech Valley Angel Network for the Center for Economic Growth, said he has not seen that trend locally.

“The bottom line is that we’ve seen continued activity and we’ve seen a modest uptick in participation that I’m encouraged by the direction it’s going. I would anticipate it to even grow a little bit more,” Pritchard said.

The Tech Valley Angel Network does not reveal exactly how many investors make up the network, but Pritchard said it’s about two dozen.

He said the overall economy is not usually the decisive factor in whether an angel investor will choose to risk capital with a fledgling firm.

“It’s my opinion that [angel investors] are less driven by investment conditions and more driven by the availability of money. If you’re an angel investor who’s been around for five or 10 years and you’ve got all of your money locked up in deals and you haven’t had any exits, that’s going to drive your interest in the next deal more than [the gross domestic product],” Pritchard said.

The term “angel investor” is thought to originate in England from the practice of wealthy individuals providing money for theatrical productions. Angel investors expose their capital to extremely high risk and therefore usually require very high returns on investment, sometimes as high as 10 times the investment within five years through a defined “exit strategy,” such as an initial public offering by the company or its acquisition by a larger firm.

Angel investors differ from venture capitalists, who manage the pooled money of others in a professionally-run fund, in that they risk their own funds.

Angels are usually accredited investors defined by the federal government as having a net worth of at least $1 million or having made at least $200,000 each of the last two years.

According to the Center for Venture Research health care services, medical devices and equipment and software remained the major sectors for angel investment during the first half of 2007, accounting for 22 percent of the total investment. This was followed closely by biotech at 10 percent, while electronics companies, information technology services, retail and industrial energy garnered close to 10 percent each.

“Since the angel market is essentially the spawning ground 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 wrote.

Pritchard said the Tech Valley Angel Network has not compiled an exact breakdown of what types of companies its investors are investing in, but said in general energy companies and advanced materials companies account for a big part of where local angel money has been going.

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