Are individual angel investors starting to get tapped out?

I got the following question from a friend yesterday.

“I’ve had a few conversations recently about how individual seed investors are getting kind of tapped out – for a variety of reasons, but in general it’s not that easy to find people who are still actively investing. I don’t recall your having blogged about this – are you seeing it too? Lots of talk about Series A crunch but maybe there is a seed crunch too?” 

I blasted out a response by email, which follows. If you are an active angel, I’d love to hear what you think.

I’m not seeing much evidence of this – yet …

I have seen some of the more prolific angels start to slow down because capital is not recycling as fast as they are putting it out. That’s a pretty common phenomenon. But generally the pool of angel investors is increasing and the prolific ones who have a strategy (such as the angel strategy I advocate) seem to be keeping a steady pace.

There is also a huge amount of seed capital available from seed funds. Some angels are no longer competitive as they are overly price focused (e.g. if the valuation goes above $3m pre it’s too late for me). And the convertible note phenomenon hasn’t helped as many seed deals just keep raising small amounts of convertible debt.

The supply / demand imbalance is way off. While there is an increasing amount of seed capital / seed investors, the number of companies seeking seed investment has grown much faster in the last 24 months.

Also, I think some angels are just tired of the deal velocity. You have to work at it now more to stay in the flow because there’s just so much more of it, and that makes angels, especially semi-retired ones, tired.

If there is a big public market correction and angels feel (a) less wealthy and (b) less liquid (or not liquid), you’ll see a major pullback.

I feel like we are in a sloppy part of the cycle. Everyone is suddenly nervous. There are lots of uncomfortable macro signs, but it’s hard to get a feel for where things are really heading. And, at the same time, the cycle of innovation is intense – there is a huge amount of interesting stuff being created at all levels. And there is a massive amount of capital available that is seeking real returns, vs. low single digits.

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This story originally appeared on Brad Feld. Copyright 2015