One positive indication that the bottom may have been reached is that, according to a report from the Center for Venture Research at the University of New Hampshire in mid-2009, angel investment figures have started to rise. During the first half of 2009, angel investors financed 24,500 new ventures, 6% more than during the same period in 2008.
The figures suggest that 2009 will have seen the birth of approximately 50,000 companies, all financed by angel investors and not by venture capital firms. In a Business Week article on November 12, Spencer Ante reports that angelic activity continues to increase and that there are still great ideas out there. “This may be the best time to start a business,” says Carl Schramm, president of the Kauffman Foundation, an organization that promotes entrepreneurship.
There are many reasons for this. The first costs are low. Office space, labor and materials are cheaper, and the entrepreneurs who weather these storms are on mission. This separates the “impostors” from the true visionaries. People who get through tough times are the type who want to start these startups and make their (and investors’) dreams come true.
Another reason is that competing headlines tend to focus inward while fighting the daily battles of tough markets. This allows startups to gain critical market share early.
This is fertile ground for private angel investors who can make investments in these companies. These entrepreneurs see a real need in the market. Anyone who can see a real need and satisfy it is the secret to successful ventures and exciting returns for investors.
If the stock market doubles in 5 years, that’s a 15% annual growth rate on investments. New venture angels generally get returns of 20-40% and some bigger, much bigger. This makes the world of PPM private placement investing a valuable addition to portfolios and an important way to offset last year’s losses. Be sure to look for the ones that comply with the rules of the Security Exchange Commission (SEC).
The following table was prepared by Gary Beach, editor emeritus of CIO Magazine. The table, based on the Fortune 500, shows what percentage of the top companies joined during a recession.
Based on Fortune 500
Percentage that entered the business during a recession year
Top 10 companies
70%
Top 25 companies
64%
Top 50 companies
52%
Top 100 companies
43%
Top 500 companies
36%
Percentage of years the U.S. has been in a recession: 39%
Data: Gary Beach, Fortune, NBER, Wikipedia
Based on this data, the US has been in a recession for 39% of its years. Among the top 10 Fortune 500 companies, 70% started in recession. What this means is that almost 40% of the time the United States has had slow economic times, and yet we continue to grow.
Giants are still made in tough times. According to the history of the United States, times of recession are not new.
Most angel investments range from $ 10,000 to $ 1 million. This is a portfolio investing game to spread your bets. Not all are winners. Usually 24% end up bankrupt, but the winners more than make up for the laggards. This is the power of a diversified portfolio. As companies with strong innovation seek funding, this provides an opportunity to make up for past losses and build personal enthusiasm.