Angels' wings stretched by funding gap

A new report has found that US angel investors are pumping more than ever into the market, but that a shortage of later-stage capital is forcing them to stretch their investment into the post-seed stage.

According to the report by the Centre for Venture Research at the University of New Hampshire, total investments for the first half of 2004 added up to US$12.4 billion, compared with total investments for the full year 2003 of $18.1 billion.

Centre director Jeffrey Sohl said the post-seed funding gap, in the $2 million to $5 million range, had forced angels to redistribute seed investment dollars to fill the needs created by a continuing gap between seed and post-seed funding. In Q1 and Q2 2004, angel deals in the post-seed stage represented 31 per cent of the total investments.

"Angels are shifting their investment strategies toward post-seed investments and thus reducing the proportional amount of seed and start-up capital," said Sohl. "This restructuring of the angel market has in turn resulted in fewer dollars available for seed investments, thus exacerbating the capital gap for seed and start-up capital in the United States."

In the first half of 2004, 59 per cent of angel investments went into seed and start-up stage ventures.