What the angels are saying: Comments from latest Angel Capital Association survey

Questions and samples of responses from the that was :

What do you see as the short term implications of recent market conditions on investing?

• “There is a greater reluctance by angels to invest in companies due to the lack of exists on existing investments and their reduced liquidity of remaining funds.”
• “Investors are concerned by impact of economy on their net work and ability to invest. Angels will be far more selective and cautious.”
• “Members may have less liquid funds to invest in early stage companies.”
• “As a fund, our investment activity should not significantly change. However, we are seeing a significant decrease in the number of member sidecar investments and the dollar amounts committed is leading to a need for more co-investment among angel groups and VCs.”
• “Valuations are coming way down. Follow on capital is scarce.”
• “Valuations are lower. Angels are pickier. It will take a longer time to exit.”
• “It is a buyers market for investing in new, health companies.”
• “The Bernie Madoff scandal makes people appreciate the transparency angel groups offer. The collapsing stock market makes people want alternatives. I have never had so many candidates for group membership. That said, everyone seems to feel broke, regardless of how much money they have.”

What are the immediate and long-term challenges you anticipate for your portfolio companies?

• “They need to focus on getting to cash flow positive and not assume there will be additional capital.”
• “The short term challenge is stretching cash to stay alive through a combination of cost cutting and fundraising or even going in to hibernation if necessary. The long term challenge is growing revenues while holding the line on expenses and raising cash even if it isn’t needed. Cash is king!”
• “The challenge is finding the appropriate run rates now to manage cash and still be positioned to capitalize during the recovery.”
• “We have relied on our VC partners for information. Given their challenges, we are engaging our portfolio companies more. We anticipate our VC partners to keep dead companies alive, with our assistance. We are going to resist this. In the long term, things will be good.”
• “Companies will need to learn to run a tighter budget and accept more board oversight.”
• “In the current market companies are struggling to obtain credit and funding. In the long term, companies will face the challenge of increased competition and decreased sales. Achieving and exit or M&A will also become increasingly difficult.”

In which areas to you see opportunities in today’s private equity market?

• “We have moved to more mature businesses with significant revenues – typically a VC A round. We are also looking to buy bankrupt companies.”
• “There is opportunity with services and products that immediately save companies money.”
• “Green environment (wind, alternative and renewable energy); and high tech”
• “Angel funds may have some great opportunities to help young companies or restructuring companies that may not otherwise be able to obtain traditional capital funding due to tightened banking policies and practices.”
• “There are many good opportunities at more attractive valuations as a result of fewer investors.”
• “Life sciences are a good opportunity. Companies will revenues at $1,000,000 to $2,000,000 will be easier to fund than pre-revenue companies.”
• “We see a great deal of entrepreneurial activity in the life sciences, especially in medical devices. We think the current level of activity is likely to increase in this field in the coming years.”

What other thoughts or observations do you have about the current market and the future of angel group investments?

• “Good deals will be made if there is capital available. Overall angel group activity has subsided, but is still far more active than our local VC community.”
• “As long as quality deals that interest investors continue to come in, there will be an appetite for angel investment. Just like any portfolio company, our group has to adapt to market conditions.”
• “This market is encouraging angels and angel groups to be more disciplined and has promoted co-investment.”
• “Liquidity and risk appetite will decrease. I think pooling of capital will be increased.”
• These are tough times but we will recover. I would like to see meaningful tax incentives even for “entry level” angel investors. Also, they should reduce the holding period to 3 years compared to the 5 in the stimulus package.”
• “An increasing role of government control will limit opportunities in the free markets.”
• “Syndication will probably bring great value if we can ever figure out how to deal with the issues syndication creates.”
• “This too shall pass. We will be back to normal in a year or so.”
• “Follow on capital must come back or we will be out of business.”
• “Angels will invest more cautiously and at a somewhat later stage such as revenue being used as evidence of traction.”
• “There is no one in the seed space except Angel investors and no better time for valuations. Angel investors have to have a high risk profile and view for the long run.”