Angel Investor Activity on the Rise – Private Placements Continue to Grow

A positive data point that the bottom may have been reached is that per the University of New Hampshire’s Center for Venture Research mid-2009 report is that angel investment numbers have started to rise. During the first half of 2009, angel investors financed 24,500 new ventures, 6% more than during the same period in 2008.

The figures suggest that 2009 will have shown the birth of roughly 50,000 companies-all funded by angel investors and not venture capital firms. In a November 12 Business Week article Spencer Ante reports that angel activity continues to rise and great ideas are still out there. “It may be that this is the best time to start a company,” says Carl Schramm, president of the Kauffman Foundation, an organization that promotes entrepreneurship.

There are several reasons for this. First costs are low. Office space, labor and materials are cheaper and entrepreneurs who weather these storms are on mission. This separates the “posers” from the real visionaries. People who weather tough times are the kind that you want to start these new companies and take their (and investor) dreams into reality.

Another reason is that competitor incumbents tend to get inwardly focused as they fight the daily battles of hard markets. This allows the start-ups to gain early critical market share.

This is fertile ground for private angel investors who can make investments in these companies. These entrepreneurs see a real need in the market. Anyone who can see a real need and fill it is the secret for successful enterprises and exciting investor returns.

If the stock market doubles in 5 years, that is a 15% annual growth rate on investments. New venture angels typically see returns of 20-40% and some larger, much larger. This makes the world of private placement investing with PPM’s a worthy addition to portfolios and a major way to make up for past year losses. Be sure to look for ones that are Security Exchange Commission (SEC) rules compliant.

The table below was put together by Gary Beach, publisher emeritus of CIO magazine. The table, based on the Fortune 500, shows what percentage of top companies were incorporated during a recession.

Based on Fortune 500

Percentage that were incorporated into business during a recession year

Top 10 companies

70%

Top 25 companies

64%

Top 50 companies

52%

Top 100 companies

43%

Top 500 companies

36%

Percentage of years that the U.S. has been in recession: 39%

Data: Gary Beach, Fortune, NBER, Wikipedia

From this data, the U.S. has been in recession for 39% of its years. Among the top 10 Fortune 500 companies, 70% started in recessions. What this means is that in almost 40% of the time the US has had slow economic times, and yet we keep on growing.

Giants are still made in tough times. Based on America’s history, recessionary times are not new.

Most angel investments range from $10,000 to $1 million. This is a game for portfolio investing to spread your bets. Not every one is a winner. Typically 24% end in bankruptcy, but the winners more than make up for the laggards. This is the power of a diversified portfolio. As companies with solid innovation seek funding this provides opportunity to offset past losses and generate personal excitement.