Oct. 25, 2004--If this year's first half results are any clue, 2004 promises to be a heavenly year for total investments made by the angel capital community, a new study says.

The downside is that the capital gap entrepreneurs face after getting their seed funding may be widening. Investments made by angels--usually wealthy individuals or "cashed out" entrepreneurs--reached $12.4 billion through the first half of the year, according to a new report issued by the Center for Venture Research at the University of New Hampshire. Total angel investment for all of 2003 topped out at $18.1 billion.

The study also found that 27,500 entrepreneurial ventures received some form of angel funding through the first three months of the year, a 31% increase from last year's total through the first quarter.

"Angels have traditionally been the largest source of seed and start-up stage capital in the United States and angels continue to favor these stages, with 59% of the first half of 2004 angel investments in seed and start-up stage entrepreneurial ventures," said Jeffrey Sohl, director of the center.

Sohl added that angels have typically been strong in funding seed stage companies, but 31% of angel investments made in the first half went to companies looking for post-seed stage deals. Sohl said that angels are increasing the size of their investments because entrepreneurs face a widening capital gap that exists between $2 million and $5 million.

"Angels are shifting their investment strategies toward post seed investments and thus reducing the proportional amount of seed and start-up capital," Sohl said in the report. "This restructuring of the angel market has in turn resulted in fewer dollars available for seed investments, thus exacerbating the capital gap for seed and start-up capital in the United States."