Last week's angel investment report by the Angel Capital Association reported that investments by angel investors dropped nine percent in 2008, with a hefty percentage of angel investors--40 percent--expecting this year will be a down year. However, a quick check of local, Southern California angel investors finds that although angel investment is down, investors are still investing--albeit much more selectively.
"Capital efficient companies offering very competitive terms are still getting funded," says Al Schneider of the Tech Coast Angels, although it appears the group is much more sensitive about how it is investing in deals. Speaking with Frank Peters, also of the Tech Coast Angels, valuation has become much more important to angel investors. Peters said, "If you really want to make your opportunity stand out from the huge pile of deals we are seeing, you've got to price it right." Peters goes to explain, saying last year, if the group saw a deal they liked, they would negotiate the right valuation during due diligence. This year he says, "you can't play that game" because there's so much less money available--you've got to have the "right number" on the deal when you come in.
John Dilts of Westlake Village-based Maverick Angels says that the ACA numbers are consistent with what he is seeing as well. TCA's Schneider says that the angel group funded approximately four times as many companies and four times the capital as the average Angel Capital Association group. What isn't appealing to angel investors right now? Schneider says "Capital intensive companies, or those with less appealing value propositions, are not generating much traction among angel groups."