The Red Herring published an interesting summary of two research reports that looked at US Angel investing trends in the first half of 2007. Although the figures don’t relate to Canada the overall trends are just as relevant.

Overall, angel investing totaled $11.9 billion in the first six months (of 2007), a 6 percent decline versus the year-ago period, according to a study by the Center for Venture Research at the University of New Hampshire.

A 6% drop perhaps, but that’s still a massive amount of risk capital – and 42% of this went into seed / early stage company’s. The average investment size was $US 211,000. This amount is in the ball-park of what we would define as a “seed stage” investment (ie not $1-2,000,000).

“More investors are seeing there are advantages to being part of groups,” said Marianne Hudson, executive director of the Angel Capital Association. “There are advantages in being able to pool your resources, see better deals while remaining anonymous yourself and learning the investment process from others.”

Angel Groups are a great place to learn how to make venture capital investments – local initiatives such as Les Anges Quebec, Angelus, NAOQ and Montreal Angels should be encouraged and supported. Angel investing can be very profitable but Angel’s need to understand how to structure deals and protect their investments from future dilution.

More than 54 percent (of Angels) complained that their equity positions were diluted through recapitalization and more than 20 percent charged later investors with changing investment terms to gain better returns.

M&A’s provide the most likely exit routes and as such Angels should be looking at investing in businesses areas where M&A activity is traditionally high.

The Center for Venture Research reported that 61 percent of investment exits by angels were through acquisition by another firm, 33 percent through bankruptcy and 6 percent through an initial public offering.