Angel investment is growing rapidly, but it's not necessarily closing the capital gap, according to a new report from the University of New Hampshire's Center for Venture Research.

The angel investor market reached $12.7 billion in the first half of 2006, a 15 percent jump from a year earlier. But while roughly 130,000 active angels are investing more money, fewer entrepreneurs are benefiting. The number of entrepreneurial undertakings that received capital from angels in the first and second quarters was only 24,500, down 6 percent from a year earlier, according to the research released on Sept. 20.

The center's director, Jeffrey Sohl, noted that the deals are getting larger -- with the average size of an angel investment up 22 percent since last year.

"While angels are not abandoning seed and start-up investing, it appears that market conditions, the preferences of large formal angel alliances, and a possible slight restructuring of the angel market are resulting in angels engaging in more later-stage investments," Sohl said in a statement. The reason, his research suggests, is a secondary capital gap.

The capital gap has historically been between $100,000 and $1 million -- above bootstrapping and self-financing, but below the point when a company would catch the eye of venture funds. Traditionally, this has also been where angel investors focus.

But Sohl argues that around 1998, a secondary capital gap began to emerge in U.S. equity markets. As venture capitalism gained popularity, VC funds grew in size, and subsequent investments needed to grow as well. As VCs set their sights on bigger things, a secondary gap emerged in post-seed, but still early-stage financing -- between $2 million and $5 million.

The new UNH research suggests that angel investors are moving to fill that gap.

"There is certainly a push for that in Silicon Valley," said Laura Roden, managing director of the Angels' Forum, a Palo Alto, Calif.-based private equity group.

Of her own firm, Roden said, "We don't fund concepts. We fund product development and commercialization. People say to us, 'That sounds like VC criteria.' Well, it is VC criteria. We just handle smaller investments."

According to the UNH research, angels are still the largest source of start-up capital in the nation, but post-seed investments are increasing. The trend began in 2004 and has now reached its highest levels. Forty-five percent of angel investment dollars went to early post-seed companies in the first half of 2006.

The effect of the shift, Solh explained, is less money for seed investments and an exacerbated start-up capital gap.