ZPEnergy.com - Angel Database Dwindles

Thursday, December 18, 2003
San Francisco Business Times
Mark Calvey

Perhaps nothing is more indicative of how angel investors' wings have been clipped than the 80 percent decline in the number of wealthy investors tracked by International Capital Resources.

Since 1989, the firm in San Francisco's financial district has closely monitored angel investors and where they're investing. The company charges entrepreneurs to be connected to the angels.

The firm's database counted 10,000 active angels at the peak of the boom in 2000. Today, ICR's database lists just 2,000 active investors.

"These sophisticated angels play a critical role in financing entrepreneurs," said Gerald Benjamin, founder and senior managing partner of ICR.

Benjamin also is a founding partner of Angel Lake Capital Partners, an early-stage venture fund focused on medical, telecommunications, high-tech manufacturing, software and the Internet. He is working on raising a second investment fund, but declined to discuss details.

"Investors are less aggressive," said Benjamin, surrounded by stacks of books and reports in his small office that resembles a professor's quarters.

Many angel investors have slowed their pace of making new investments so they can keep some powder dry in case existing portfolio companies require follow-on financing.

In choosing new companies to back, angels are being much more discriminating, taking longer to conduct due diligence. Often they want to see customers -- a sign that the company's product or service is gaining early acceptance in the marketplace. They're also eager to see patents and other intellectual property that will make it difficult for new competitors to enter the market.

Despite the sharp decline in the number of angel investors tracked by ICR, the firm continues to be approached by a steady stream of entrepreneurs eager to meet investors who are still writing checks.

And those starting businesses in the dark days of a downturn could be more appealing to investors as well.

"We love investing in a down cycle," said Bay Area angel investor Carol Sands, who heads the Angels' Forum. "The kind of person starting a company in difficult times is a true entrepreneur."