Angel investors see opportunity in credit crunch

By agencies   |   Wednesday, 26 December 2007, 12:44 Hrs
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New York: It is time for a rethink if you ever thought that finance had nothing to do with angels. These high-net-worth individuals, largely unfazed by the downturn in the housing market and signs of weakness in the U.S. economy, are still out in droves. Yet as their name implies, angels are not readily visible and have to be painstakingly wooed before they make a financial commitment.

However, once they latch onto something they believe in, they often work harder than George Bailey's Clarence to earn their wings. "It is a fine time to look for angel funding," says Jeffrey Sohl, Director of the University of New Hampshire's Centre for Venture Research, which is tracking increased angel interest in recession-proof industries like software, healthcare services, medical technology, online social networks and alternative energy.

It's hard to quantify how much angel investing is taking place; many deals fall under the radar. According to the university's research, the number of active angel investors rose to 140,000 in the first half of 2007, up 8 percent on the year as interest in seeding early-stage companies continued.

During that time, angels sank some $11.9 billion into 24,000 entrepreneurial ventures, which is down slightly from the year-ago period. Angel funding became an increasingly prominent alternative after the burst of the dot com bubble as venture capital firms raised the bar on initial investment as well as on the measures of business viability that they require startups to meet, according to those in the tight-knit angel community.

"This is absolutely filling a void," says Les Trachtman of the Saratoga, New York-based Trachtman Group, which invests in technology companies looking to scale their operations.

Angels often come in at the very early stage of a start-up, after so-called friends and family money has been raised, investing anywhere from $100,000 to $1 million. They may later come back with an additional round before a company seeks a higher level of funding.

The Venture Lab at the Georgia Institute of Technology, for one, has been the launching pad for 19 companies in the past six years, many which got their start with angel funding.

"We have professors that come up with interesting idea. We have graduate students, we have undergraduates; typically they don't have the financial wherewithal to do a lot with it themselves," says Stephen Fleming, the lab's chief commercialization officer.

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