By Allan Maurer
ATLANTA—Angel capital groups at the Angel Capital Association meeting in Atlanta last week were positive despite the down economy, says William Podd executive director of Greenwich, CT-based Landmark Angels Inc. “The mood was positive in the sense that there are opportunities,” says Podd. “Out of crisis, opportunities arise.”
In particular, “special situations” such as the chance to get in on later stage deals that angels do not see in a normal economy are appealing. “Angel groups now have the opportunity to invest in these better deals,” says Podd.
Statistically, the angel group directors, members and others at the ACA meeting heard that overall group member investments are down. Some angel groups have begun shedding inactive members and admitting new ones more aligned with their focus. One group even lowered its minimum investment from $20,000 to $10,000.
More groups are looking for deals that have a product ready to ship or nearly so and investments into true startups have decreased substantially, the ACA’s Angel Research Committee reported.
It said that IT still commands the largest share of angel group investments at 35 percent; healthcare claims 25 percent; and financial services 18 percent among the largest single sectors.
The median investment is $700,000 and post-money valuations average between $4 million and $8 million. Pre-money valuations have, as might be expected, decreased to around $2 million.
With IPOs virtually non-existent and M&A activity becoming fewer, some angel investors are looking at secondary markets as a third path to liquidity, Podd says.
That means that a secondary investor comes in and pays the original angel investor(s) some agreed upon multiple, not the full upside expected, but at a discount. So, Podd explains, the question becomes, “Do I sell it now for a 1.5X return and get some liquidity or sit back and wait because I think I should be getting a 2X or 3X return?”
Those deals involve the secondary investor agreeing that if it exits down the road and reaches its target, say 2X , it shares part of the upside over the 2X with the original investor, Podd says.
The economic downturn is not without effects on the angel investing community. One angel group said in a panel discussion that its average investment fell from $650,000 to $280,000.
The actual number of investments and the amount of the investments have both decreased.
One thing evolving that got attention at the event, Podd says, is syndication in which angel groups join in funding good deals that sometimes include venture capitalists as well. “They discussed how groups can successfully get involved with other groups doing syndication now and ways of formalizing the syndication process,” Podd says.
One panel concluded that it’s not a good idea to put follow-on money in a losing company. Some have and found that their investment yields are substantially down. So rather than saving a losing company that will die without further cash, the panel said it is a better idea to put money into a new and better deal.
Online: http://www.angelcapitalassociation.org ; http://www.angelcapitalassociation.org
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