Angel investing hits a nadir

Startups can take comfort in signs that early-stage investing may have hit bottom

For most seed- and early-stage startups, it's been a challenging 12 months to raise funds. But that's likely to change in the coming months as angel investing picks up again. 

In the first half of 2009, the total investments made by angel investors was $9.1 billion, down 27% from the first half of the prior year, according to the Center for Venture Research at the University of New Hampshire. 

But a total of 24,500 entrepreneurial ventures received angel funding, an increase of 6% from the same period a year ago. At the same time, the number of active investors remained practically the same at 140,200 individuals.

The uptick in the number of ventures, coupled with the significant drop in investment dollars suggests angel investors committed fewer dollars due to lower valuations, while at the same time took a more risk-averse approach to investments. Indeed, the earliest part of investing - the seed- and early-stages, which many may consider the more riskier part of the investment cycle - only received about a quarter of all the investment dollars, resulting in the lowest amount of investing in this stage in many years.

But despite the grim report showing that investments declined in the first half of this year compared to the prior year, when looking at the correction during the second half of 2008, the data indicates that angel investing has likely hit bottom during the first six months of this year, the report concludes.

So, what are angels investing in? Healthcare and medical devices accounted for 28% of investments, followed by software at 14% and electronics and hardware at 14%.

(Image source: Smallbusinessfinancingtoday.)