Is there Venture Capital and Angel Investment Capital in a Down Market?



Angel Investors, fund managers, investment groups, and early stage VCs are finding golden opportunities in these economic times. Entrepreneurial America has never been more vibrant, creative, productive, or innovative. With market conditions keeping the stock value of these entrepreneurial endeavors artificially low, the opportunity for sophisticated investors and the potential for returns has never been greater. With the collapse of public stock values for even "Blue Chip" companies driving investors to seek alternative avenues and the cost of key business inputs (labor, rents, technology) lower than ever, the time is right for entrepreneurs to seek private capital to expand their businesses and lead the economic recovery. That's not to say that investors are throwing money at early stage companies. They identify, investigate and selectively invest in the best opportunities. So entrepreneurs need to be ready to reach out to investors at every opportunity, be it venture conferences, angel groups or networking events. Entrepreneurs seeking to lead the economic growth curve need to be prepared to tell their story, explain their model and inspire belief in those investors they connect with.

Raising Capital in a Down Market is no different than raising investor money, particularly angel investor capital, at any other time. Historically, the number of companies seeking early stage capital who are able to complete their funding has fluctuated between 15% and 23%-with a high of 28% during the dot.com boom. That means over 75% never raise all their capital...in good times and bad.

According to the National Venture Capital Association, 3,808 ventures raised VC funding in 2008 totaling $28.3 billion. Angel investments dropped in 2008 by 26.2 percent over 2007, but the number of deals was relatively unchanged, with 55,480 entrepreneurial ventures receiving funding of about $37.2 billion, according to the 2008 Angel Market Analysis released by the Center for Venture Research at the University of New Hampshire. Remarkably, this was after the "recession" had officially begun. In short, venture and angel money continues to flow. Investors may be slightly more cautious but their desire to create wealth through their investments or provide a return to their limited partners has not waned. The market continued to see a decline in the total number of companies getting funding.... down to a shocking 9% of those seeking capital, that qualified to present to these angel groups, received all their capital. The net number of companies receiving capital stayed the same for the most part which means that entrepreneurs received less capital per investor than what had been the norm in previous years. This is not surprising given the uncertainty in the market and the subsequent motivation to conserve capital in preparation for continued difficult times.

Investors still have an incredible opportunity to increase their portfolio with wise investments. Why?

1. Valuations are compressed so that the cost of the equity for an early stage investor is lower than it would have been a year or two ago.

2. Typical exit for investors is 3 years or more. All indicators is that our economy will be in full recovery in 3 years making it a perfect time for exits with the sale of company or in a stronger IPO market.

When early stage companies have the fundamentals of a successful business: growing target market, product that satisfies and unmet need in the market, and a management team with the knowledge and experience to execute; All that these firms need is good old-fashioned growth capital.

How can investors and entrepreneurs find each other in these economic times? One way is by encouraging investors to join an angel group so they can share the risk with other investors and have the companies pass through an initial screening that results in a significant time savings to the investors who consider the pitch in a more formal setting.

1. An intimate setting to maximize the effectiveness of investors' time.

2. Ease of making the strategic connections critical to the business objectives of both investors and entrepreneurs.

3. A screening process for both the entrepreneurs and investors, allowing participants to know they will be meeting the connections they seek and not just service providers or job seekers.

4. Well-screened companies that are in their first or second round of outside capital - still within reach of the early stage private equity investor.

5. Opportunity for companies to gain exposure to a large group of varied investors and members of the capital community who represent both personal investment potential and institutional investors.

6. Publicity for presenting companies through prepared investor communications and by word of mouth to those in the investor community who are unable to attend the event.

Angel investor forums, such as the member meeting for NBAI investors, provide a variety of opportunities for investors seeking emerging growth technology, software, life sciences, and consumer goods companies from across the United States. Investors tend to invest in industries they are familiar with so it is important to provide a forum for companies from a variety of industries.With investors looking for ways to rebuild their losses from recent market fluctuations and entrepreneurs seeking capital to bring tremendous innovation and job growth opportunity to the market, venture conferences that are committed to helping early stage companies are poised to be pivotal events and have profound impact on the market. Entrepreneurs and investors seeking to be economic architects - builders of change that will bring prosperity to all involved, should be applauded for their roles in the economic recovery.

Author:.

Karen Rands, is a sought after expert in the art of raising capital and furthering the pursuit of investors and entrepreneurs coming together to bring innovation to market, create jobs and create wealth. Karen's companies, Launch Funding Network and the Network of Business Angel Investors, under the Kugarand Holdings corporate umbrella, provide strategic advice and counsel and unique environments for both entrepreneurs and investors. Investors can get free excerpts of her Learn To Be An Angel ...

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