Angel investors regain healthy altitude
After lying low for a few years, angel investors are flying high again, a possible early indication that more capital could be on its way to small businesses in the Northwest. The Alliance of Angels, one...
Seattle Times Technology reporter
After lying low for a few years, angel investors are flying high again, a possible early indication that more capital could be on its way to small businesses in the Northwest.
The Alliance of Angels, one of the largest networks of individual investors in the Puget Sound area, said yesterday 2004 will be its busiest year since 1999.
The alliance, with about 110 investors, meets monthly to hear business plans from three companies, then decides whether to invest on an individual basis.
This year, nine companies received $4 million, more than any year since 1999, when 15 companies received $4.3 million.
Last year marked the start of the angel revival when eight companies received $3.1 million. The previous year, 2002, was the worst in five years when only six companies received $1 million.
The alliance does not account for all angel investing in the Northwest and its numbers are only estimates, because members are not obligated to report investments. But Alliance Chairman Dan Rosen said the figures suggest good things on the horizon.
Rosen, a venture capitalist at Frazier Technology Ventures in Seattle, said angels are a bellwether of how the area will perform going forward. The theory goes that if angels are active one year, there will be more opportunities for venture capitalists the following year because VCs invest in more-mature companies.
"I think you can begin to expect some of the (angel) deals done in 2002, 2003 and 2004 are ready to take in venture-capital money in 2004 and 2005," Rosen said.
It's already started. Seattle's DocuSign, which offers a way to sign documents without paper, received angel funding in 2003. This year, it received $4.6 million from investors including Ignition Partners and Frazier.
Rosen said angel deals are happening much faster, with some completed by the end of lunch.
Janis Machala, managing partner at Paladin Partners, a consulting company, is seeing that as well, along with a more general pickup in activity.
"I was recently an investor in a startup. We raised the money, $2.5 million, in about a month."
The interesting part of that deal, Machala added, is the company didn't attend any angel forum. "I would bet 75 percent of angel investing happens outside of the forums. You just don't hear about it as much," she said.
Rosen said angels are active now for three reasons: Entrepreneurs are more realistic about how much money they can raise; angels think the value of deals will increase; and investors' risk appetites are increasing as they see investments perform well.
An example of a strong performer is Bellevue's HouseValues. Angel investors owned substantial stakes even at the time of its recent initial public offering.
Although HouseValues was not funded officially through the alliance, Rosen said its track record suggested to local investors that they can be rewarded for placing bets on early-stage companies.
"That's a great deal to look at from that point of the view that there is light at the end of the tunnel," Rosen said. "If it was a deal I was in or one I missed and it is doing well, maybe now I ought to think about being in next one."
Tricia Duryee: 206-464-3283 or firstname.lastname@example.org