Angel Investors Optimistic about Medical Devices

The angel investment market saw steady growth in 2006, with total investment rising 10.8% over 2005 levels to $25.6 billion. According to data released by the Center for Venture Research at the University of New Hampshire (UNH; Durham, NH), 51,000 entrepreneurial ventures received angel funding during 2006, and the size of the average deal rose 7.5% compared with 2005 figures.

During the year, ventures in the healthcare services and medical devices and equipment industries accounted for 21% of total angel investment. The combined industries—which led all others in terms of investment—were followed by the software industry, which secured 18% of angel funds, and biotech, also with 18%.

The report estimates that 234,000 individual investors were active during 2006.

"If the angel market is to achieve sustainable growth, there needs to be a reasonable augmentation in active investors, and thus, level of participation is an important consideration," said Jeffrey Sohl, director of the UNH Center for Venture Research at the Whittemore School of Business and Economics. "While the number of angel organizations, and individuals that are members of organized angel groups, is increasing, there is a larger percentage of latent angels, meaning individuals who have the necessary net worth, but have not made an investment."

In its analysis, the Center for Venture Research found that angel investors continue to be the largest source of capital for seed and start-up ventures, which captured 46% of 2006 angel investments. Post-seed and post-start-up investments accounted for 40% of angel investment.

"While angels continue to represent the largest source of seed and start-up capital, market conditions and the capital gap in the post-seed investing stage are requiring angels to engage in more later-stage investments," Sohl said. "New first-sequence investments represent 63% of 2006 angel activity, indicating that some of this post-seed investing is in new deals. 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."

The angel investor enthusiasm evidenced in the Center for Venture Research report is echoed by a new report from the Angel Capital Association (ACA; Lenexa, KS). According to a survey of ACA's member angel organizations, investors expect their 2007 investment activity to continue at the same level or increase somewhat over 2006 levels. More than 80% of groups surveyed plan to continue investing in seed and early-stage companies.

Furthermore, angel group leaders expressed the greatest level of interest in investment opportunities in the medical device arena, with 89% of respondents indicating that they were on the lookout for medtech ventures. Mirroring the 2006 investment levels reported in the Center for Venture Research report, the software and biotechnology industries received the next-highest levels of interest, at 85% and 67% respectively.

"These predictions bode well for angel group investing in 2007," said John May, chairman of ACA and comanager of the Washington Dinner Club (Washington, DC). "Not only are angel groups funding early-stage ventures at an increased level, but many are also reserving follow-on funding for their portfolio companies to help them grow."

Anticipated angel investment growth in 2007 builds on reported increases in 2006 funding among ACA members. According to survey respondents, ACA angel investment groups made an average of 7.4 investments in 2006, with average total funding of $1.78 million per group. These figures represent a rise over 2005 levels that averaged $1.45 million across 5.5 deals.

The average size of an investment per round for a group was $241,528 in 2006, while the average investment per individual angel was $31,457.

ACA reports that the groups responding to the survey represent about 3000 individual angel investors.

© 2007 Canon Communications LLC

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