Pace of Angel Investing Drops in 2013

Entrepreneurs hoping to find seed funding for their startups may need to work harder this year: The level of angel investments made during 2013’s first nine months tracked below last year’s figures, according to TechCrunch’s CrunchBase.

FeatherDuring that time, the number of angel deals reached approximately 1,100. Expectations are the year will close out with fewer than the 1,520 deals made in 2012. If that in fact is the case, it would mark the first time in at least seven years that the number of angel deals didn’t show annual growth.

What’s significant, is that angel funding serves as fertilizer to the seedlings in the startup ecosystem. Angel funds are where companies get their first serious source of capital, beyond friends and family. And with the number of angel deals on the decline, we could see fewer fledgling companies surviving to the next stage and venture funding.

With angels less active, it may come as no surprise that the total amount raised during the first three quarters is also less than last year. To date, $545 million has been raised from angels, compared with $707 million last year, says TechCrunch.

Not All Pessimism

The Angel Resource Institute has a more encouraging forecast – at least for the activity during this year’s first quarter. The organization found that the median angel round reached $680,000 during the period, up from $550,000 during the 2012 quarter.

“The market for angel investing is solid: pre-money valuations are stable, round sizes are trending up, and market activity is spread widely throughout the U.S.,” Rob Wiltbank, Angel Resource Institute’s Vice Chairman of Research, said in a statement.

While a lot can happen between the end of the first quarter and the third, TechCrunch muses that this year’s drop in funding may stem from angels feeling the fear of a “Series A Crunch.” That, in essence, is a fear that fewer startups with seed funding will get their first round of venture funding, referred to as “Series A.” Forbes has a deep dive here.

In other words angels, who fear a wide swath of their companies will be stranded without venture funding, may be more apt to scale back their investments in new startups. When will that fear subside? That’s a tough call.

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