Sunday, April 10, 2005

Do you believe in angels?

They apparently believe in themselves, at least.

I'm of course referring to angel investors, who play an increasingly important role in venture investing. As this article describes, angel funding actually exceeded venture capital funding in 2004, $22.5B to $18B. The article also provides a breakdown of that spending, but it's unclear how cleantech fits into the breakdown, and anyway the breakdown doesn't add up to 100%. But it's still illuminating.

As the article notes, angel investing is stepping in where the opportunities are too niche, or too early, for VCs to back. That's a vital role, and as angels get more sophisticated it's good to see more such involvement. One challenge for such individual investors, however, is that smart venture investing requires significant effort and resources to adequately research, diligence, and negotiate with the target companies.

Since many cleantech opportunities are slow to develop, the role of angels will be increasingly important in this space, providing early stage capital. Over time, however, more of these angels will also partner with (and back) like-minded venture capital firms who will have the dedicated resources and portfolio diversification necessary for consistently stronger returns. These VCs are also better positioned to help cleantech startups to mature from the angel-backed stage through to exit -- expansion-stage investing. Smart angels will partner with smart expansion-stage VCs, and vice versa, to better identify, research, and manage cleantech investment opportunities across the full growth lifecycle...


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