Though investments in startups never quite stopped during the economic downturn, there was a noticeable slowdown. Now, with the economy showing signs of life, angels and venture capitalists are rushing back into the mix.
"It's come back, and it's as good, if not better, than ever these days," said Frank J. Graziano, managing partner of boutique merchant bank Monmouth Venture Partners.
Due to factors such as cheaper rent and technology, and more people being available, there also has been an increase in the number of ventures being formed.
"It's a very vibrant startup environment," said Graziano, also director of the Columbia Business School Alumni Club of New York and an angel investor.
In New Jersey, investors have noticed.
According to Graziano, during the fourth quarter last year, New Jersey ranked in the top 10 nationally for venture capital investment.
"Over the past year, from an angel point of view, we've seen an increase in investments," said Mario Casabona, an angel investor through Casabona Ventures and chairman of JumpStart NJ Angel Network, an angel group that invests in early-stage technology companies.
Graziano said he's noticed a macro trend: investors are making smaller investments in more companies at an earlier stage, while making decent returns. The growth of seed-stage investments — money going into companies that have a working model, but have yet to prove themselves in the market — can be attributed to the lower cost of starting a business and an increase in seed-stage funds.
The rise of super angels — generally, those who have successfully exited a startup or had a successful liquidity event, and are investing in startups with larger amounts than traditional angels — also has played a role in the increase of seed-stage investments, Graziano said.
In terms of industries that see the most investment dollars, information technology continues to lead the way, followed by health care. This holds true both nationally and in New Jersey. However, while the health care industry is ripe for innovation as it tries to deliver more for less money, regulatory approvals make for a challenging experience.
"It's still the second-biggest category, but I don't think it's going to move much," Graziano said.
An area that hasn't seen as much movement recently among investors is green technology, which requires tremendous amounts of capital at the onset. However, for a primarily Web-based green startup, development costs are much lower and time to market is shorter, making it a more attractive opportunity for angel investors, Casabona said.
Investor interest in businesses that depend on government subsidies — such as solar companies — has greatly subsided in the face of a very uncertain future.
"You never know what's going to happen politically to help your company or hurt your company," said Jay Trien, founder and president of Venture Association New Jersey, a venture capital networking organization.
What has remained popular among early-stage investors is business process software.
"If your software can help a company do something better, faster, cheaper, that's software that companies want," said Trien, also a senior partner at the accounting firm of Trien Rosenberg.
Though some industries do receive more startup capital than others, investors aren't limiting themselves to these sectors. For example, Tucker Toys Inc., of Voorhees, which made a successful pitch to VANJ to secure capital, has done better than some tech investments, Trien said.
"If there is a great idea, a market need and a great team to execute the business plan, that's a winning combination," said Casabona, adding investors are looking for a qualified, cohesive team knowledgeable in their industry.
More angel investors than before are also looking to coach and mentor the companies they are funding, Casabona said.
"That's primarily to make sure you are protecting your investment," he said, adding startups are also more open to investor guidance.
But there remains a stable of worthy companies and executives to consider in the Garden State.
"The climate for the formation of early-stage companies and growth of early-stage companies in New Jersey is good," Trien said. "There is capital here, smart people here and a good infrastructure."