We have seen a large drop in venture capital investments as well as angel investments when we compare the first quarter of 2009 to the first quarter of 2008. Yet startup companies and early-stage companies are still looking for and finding private funding.
Angels and venture capitalists are looking at early-stage deals more seriously today than in the recent past, which includes longer due diligence and more scrutiny. Investors are choosing companies who have a strong management team who the investor can rely upon.
Additionally, there is a huge uptick in interest from entrepreneurs who cannot reach traditional funding sources, such as second mortgages or friends and family, but that angels are funding about 10% of the deals they see, which is at the same level as 2008. While the number of deals seems to be staying flat, the actual dollars invested have gone down approximately 30% because company valuations have gone down, thus decreasing the net worth of angel investors.
Many angel investor groups will admit that some of their members are skittish about investing, particularly those who have lost considerable net worth in the stock market decline. However there are members who would rather put their money in a new business where they have faith in the entrepreneur’s abilities rather than trusting their money with investment bankers and money managers.
While the numbers show that there is a recent drop in venture funding, it will not last forever and many venture capital and angel investor firms feel strongly about this.
Written by Shosh Pincus
This is a summary of the following article: http://www.businessweek.com/smallbiz/content/apr2009/sb20090428_764282.htm
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