MoreLIP: A Decade of Angel Investing Expansion
04/04/2010 — George Lipper, Development Capital Networks
Last week the Center for Venture Research unveiled its semi-annual report on angel investing trends. The report notes that there was a small reduction in the amount of money angels invested in 2009, though an increase in the number of investments.
The angel figures were jolting in comparison to the sharper pullback in 2009 venture capital investing, which I calculate to be about 27% less than the number of deals reported in 2008 and about 38% less the amount of money invested. I chalk it up to coincidence that both the 2009 VC totals reported by the CVR and the National Venture Capital Association were nearly identical -- at $17.6 billion.
Jeff Sohl, Director of the CVR, left the 2009 angel figures to be sorted out by his audience. I harken back to a meeting organized by Dr. Sohl a dozen years or so, at a time when angel investment began its sudden growth cycle and transformed from a loose community of individuals (with whom entrepreneurs had to play hide and seek) into a solid rung on the capital structure of the investment community.
Dr. Sohl convened about a dozen people involved in angel investing -- including yours truly -- in Boston to discuss where angel investors had been and where the class was going. I was prepared to share with this group something I had begun to observe: a fierce increase among many states to get involved in angel activity, with public incentives, group investing, identifying local angels, whatever the states could do to buoy activity at the local level -- particularly in what we described as "fly-over" states.
At the time, venture capital investing in many states was rare indeed. The National Association of Seed and Venture Funds (for whom I toiled at the time) was receiving more and more calls to present a program it had created called "Seed Investing as a Team Sport," a one-day workshop for potential investors to learn about angel and seed-stage investing. With financial support from the US Dept. of Energy, we held dozens of such seminars from Reno to Charleston, but mostly in the upper Midwest.
At Dr. Sohl's meeting I learned, much to my surprise, that Bill Payne -- then an active member of the highly regarded Tech Coast Angels -- was planning to make a similar observation focused on the growth of privately-formed angel groups.
Angel investing was clearly on a high-growth path, perhaps because of changes coincidently occurring in the institutional venture capital industry, which was increasingly targeting more profitable later-stage investments that required less time from investment to harvest. As seed and start-up funding contracted to less than 5% of venture capital investment, fly-over states became more numerous and more distant from investment hubs. Fly-over states had also observed this trend and, with a little prodding, began to see the potential and what they might do to encourage it.
Over the ensuing decade, half these fly-over states have developed a variety of tax credit programs encouraging angel activity, mostly for group investing. And added to this list just last week was Minnesota, a state where I and a colleague of mine, Jim Troxel, had delivered so many how-to presentations for the NASVF we should have voter registration cards.
The Kauffman Foundation, where the aforementioned Bill Payne lent his time and energy as Entrepreneur in Residence, has also joined the angel investing parade of support, contributing the time of employee Marianne Hudson to form the Angel Capital Association, which she now serves as Executive Director, when not lamenting the sad fate of the Kansas Jayhawks.
Last week's angel investing statistics from the CVR come at a time when we badly need to help entrepreneurs launch growth opportunities. Through the CVR, ACA and other organizations, angels today are actively building reliable performance statistics to better asses an asset class that has become a solid segment of our capital structure.
It not only pleasing to have been a small part of it; but also to remember that day in Boston when Bill Payne left me wondering what to say after he reported his observation of growing angel market trends. But then, he’s a better golfer, too.