Angel Investor Activity on the Rise: Private Placements Continue to Grow
One silver lining that may have bottomed out is that, according to a mid-2009 report from the Center for Risk Research at the University of New Hampshire, 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 seen the birth of approximately 50,000 companies, all financed by angel investors and not by venture capital firms. In a November 12 Business Week article, Spencer Ante reports that angel activity continues to increase and there are still great ideas. “This may be the best time to start a business,” says Carl Schramm, president of the Kauffman Foundation, an organization that promotes entrepreneurship.
There are many reasons for this. The first costs are low. Office space, labor, and materials are cheaper, and contractors weathering these storms are on a mission. This separates the “posers” from the true visionaries. The people who make it through the tough times are the type who want to start these new businesses and make their (and investors’) dreams come true.
Another reason is that competitor incumbents tend to focus on themselves as they fight the daily battles of tough markets. This allows startups to gain critical market share early.
This is fertile ground for private angel investors who can invest 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 to successful businesses and exciting returns for investors.
If the stock market doubles in 5 years, that’s a 15% annual growth rate in investments. New venture angels typically see 20-40% returns and some bigger, much bigger ones. This makes the world of private placement investing with PPM a valuable addition to portfolios and an important way to offset last year’s losses. Be sure to look for ones that comply with Securities and Exchange Commission (SEC) regulations.
The following table was compiled by Gary Beach, editor emeritus of CIO magazine. The table, based on the Fortune 500, shows what percentage of the top companies incorporated during a recession.
Based on Fortune 500
Percentage who entered the 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 the United States has been in a recession: 39%
Data: Gary Beach, Fortune, NBER, Wikipedia
From this data, the US has been in a recession for 39% of its years. Among the top 10 Fortune 500 companies, 70% started in recessions. What this means is that almost 40% of the time, the US has had slow economic times, and yet we continue to grow.
Giants are still made in hard times. According to the history of the United States, times of recession are not new.
Most angel investments range from $10,000 to $1 million. This is a portfolio investment game to spread your bets. Not everyone is a winner. Usually 24% end up bankrupt, but the winners more than make up for the laggards. This is the power of a diversified portfolio. As companies with strong innovation seek funding, this provides an opportunity to offset past losses and build personal enthusiasm.
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