The U.S. Angel and Venture Capital Market

Abstract

Since the nadir of the early nineties the angel and venture capital markets began a recovery with a vengeance, and recent market gyrations offer yet more insights into the long and winding road of the private equity industry. From a relatively quiet and little noticed beginning, angel and venture capital investments soared, accompanied by a near astronomical rise in deal valuations. For the first time since the study of angels was initiated, venture capital investments exceed, in total dollars, the amount of angel investments, although the number of deals remained larger in the angel market. A classic angel and venture capital boom was in the making. Since the law of gravity has not been repealed, even in the early stage equity financing of high growth ventures, unsustainable trends inevitably return to normalcy. Unfortunately, after such lofty behavior, the return to normalcy often seems a harsh penalty. In general, the carnage has resulted in the needed culling of the forest. Angels are reasserting their fundamental role as the major source of seed capital for high growth entrepreneurial ventures. Patient investing is back in vogue and unsustainable expectations have been discarded into the trash heap of an overheated market. This article examines the rise and the downturn in the private equity market, and identifies some of the causes for each. Current and future market trends are also identified.