By Lucia Maffei – Technology Reporter, Boston Business Journal
Data from the 2008 recession might shed some light on the impact of the current health crisis on angel investing, experts say.
Angel investments - often made by wealthy individuals at seed and early-stage rounds for startups - drive a large proportion of activity at the seed stage, fueling the very first steps of newly born startups.
But the current economic uncertainty brought on by the pandemic will likely lead angel investors to be more picky about new deals, leaving founders with fewer options to get their companies off the ground.
Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire, cited data from between 2007 and 2008 showing a dip in angel investing. "That was a slow-building and mainly housing crisis-type recession, but it was still a recession," he said. "We're undoubtedly in a recession now, so that might give you some parallels."
In 2007, when the subprime mortgage crisis started, the angel investing market continued a reasonable growth path: Total investment was at $26 billion, up 1.8% over 2006. A modest increase in total dollars came with more investments and more angel participation - meaning that the deal sizes for that year were smaller, a sign that angels were exhibiting a cautious approach, according to the Center for Venture Research.
Angel investors are now starting to show the same cautious approach in light of the coronavirus pandemic. They're being more "picky," said Ziad Moukheiber, CEO of Boston Harbor Angels Inc., a group of approximately 70 angel investors based mostly in New England.
Venture capitalists are shying away from new deals as well. However, angel investors invest from their net worth, which is susceptible to market volatility.
"Angel investors are going to see their overall net worth go down if the economy continues to slow down. So that's an impact on their investment abilities. That's a simple formula," Moukheiber said. "They are going to review their portfolios and see how their portfolios survive through the coronavirus."
The problem, Moukheiber said, is that now things look worse than they did in 2008. Some people saw the 2008 crisis coming, while the pandemic arrived with a shock to the system. "All depends how long it's going to take to come out of confinement: the longer it is, the worse it's going to be," Moukheiber said.
For comparison, total angel investments in 2008 declined 26.2% over 2007, stopping at $19.2 billion, according to the Center for Venture Research.
Jason Burke, one of the six founding members of TBD Angels, a local group of 30 angels that got started in February this year, said the pandemic's impact on angel investing remains to be seen. Investors are likely to be more conservative in their investments starting in June though the end of the year, he noted.
"When angels see a good beam, they will invest whatever the times are," said Boston Harbor Angels' Moukheiber. "Angels cannot replace a VC around, right? No. But they can make connections to VCs. They can make work harder to help the companies, they can help with any type of advisory roles … It's called angel investing. Don't forget the word 'angel.' We're here to help companies."
---- Index References ----
News Subject: (Corporate Funding (1XO17); Economics & Trade (1EC26); Funding Instruments (1FU41); Recession (1RE01); Venture Capital (1VE73))
Industry: (Business Services (1BU80); Coronavirus (1CV19); Financial Services (1FI37); Healthcare (1HE06); Infectious Diseases (1IN99); Viral (1VI15))
Region: (Americas (1AM92); North America (1NO39); U.S. New England Region (1NE37); USA (1US73)) Language: EN
Other Indexing: (Boston Harbor Angels Inc.; TBD Angels) (Jeffrey Sohl; Ziad Moukheiber; Jason Burke) Word Count: 549
