Angel investor funding in Southern California slowed in 2008

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Things are looking a little stormy in the angel funding arena. Credit: adselwood via Flickr.

You might have heard by now that the economy is, well, not doing so great. As a result, venture funding has slowed to a tortoise’s pace, and start-ups looking for funding are finding themselves out of luck.

The answer, some say, is to turn to angel investors, who might be able to cough up a few thousand dollars to keep your doors open. These angels are typically individuals who focus on getting companies off the ground and invest much less than established venture capitals firms.

But now it appears that even angel investing is slowing down. Today, the Tech Coast Angels, which invests only in Southern California companies and is the largest network of angel investors in the United States, said it had invested 11% less in 2008 than the previous year.


The group and its affiliated investors pumped $75 million into start-ups, down from $85 million in 2007.

There’s a little silver lining in that cloud: There were 15 first-time investments and 16 follow-on rounds from TCA members in 2008, up from 12 first-time and 14 follow-ons in 2007.

But the competition is getting tougher. There were more than 200 applications for the group’s last Fast-Pitch competition, during which start-ups try to ...

... impress with their business plans. That’s more than twice the usual number of applications, said Al Schneider, president of TCA’s Los Angeles network.

Despite the shrinking funding numbers and increased competition, the group intends to continue funding start-ups, Schneider said. Because there are about 300 individuals involved in the network, they are less hard hit than VC firms that had all of their eggs in a few baskets.

‘People recognize that the best time to invest is when there is a bit of panic in the market,’ he said. ‘We’re very much open for business.’

What do the Tech Coast Angels look for in a start-up, now that they’re being pickier with their investments? A company that has impressive intellectual property, a management team that’s proved itself and a competitive advantage, Schneider said. Also, one that isn’t going to require a lot of capital soon.

Plus, he said, they have to be willing to listen to the angels’ advice.

In other funding news, Dow Jones VentureSource said last week that VCs were investing more and more money outside the United States, especially in regions such as Israel and China. They put $13.4 billion into 1,416 international deals in 2008, a 5% increase over the $12.8 billion they invested in 2007.

Venture capitalists invested 15% less in Europe in 2008 than they had in 2007, and 34% less in the Netherlands, 33% less in Sweden and 24% less in the United Kingdom. But China was gangbusters, pulling in $4.2 billion in 2008, up 50%.

-- Alana Semuels