Anyone reading this blog should know or figure out pretty quickly, I work with angel investors on a regular basis because I run the Network of Business Angels & Investors member club for angel investors.  We host events about every month for screened and qualified companies to pitch their deal to these investors.   So naturally, I get the questions….Are there any angels out there investing?  almost every day.

Recently there have been two articles in very prestigious publications that have written about this very topic.

The New York Times : “Angels Flee From Tech Start-Ups” The article is not as negative as the title would suggest, but of course it is the title that draws the readers in.   The recount the struggles of a couple of companies….but in reality no different than what happened at every other downturn we have had.   One quote summed it up nicely:

“Crashes make liquidity vanish, and venture investing — especially angel investing — runs on liquidity,” said Steven McGeady, an angel investor and former executive at Intel. “When the markets go wonky, everyone sits on cash until the situation resolves itself. This makes capital hard to find, and if a company is caught unprepared or at the wrong time, that can be the end.”

So it isn’t that the cash isn’t there, necessarily, it is that investors are sitting on their cash.   We have seen this in both the VC space and the Angel space.  Except for two trends that we weren’t expecting and I think people don’t give angel investors enough credit regarding this.   Angels are very sophisticated investors for the most part.   We saw a slow down as far back as March of 2008.  Our investors pulled their money out of the market and were engaging with companies but not making many investments.   When October rolled around, we had new members joining and many folks coming back to us that hadn’t been in a long time.  Many companies began due diligence in December.

A second article published by Inc Magazine: Angel Investing 2009.  Although number of companies receiving capital was down year to year from 2007 to 2008, the amount invested was slightly up.   John May, president of the Angel Capital Association and the managing director of an angel group in Ohio, was quoted in both articles.  He takes slightly more positive position in this article by characterizing the angel investors as active, but cautious, and seeking to get a better value (discount) on their investment.

So companies need to be prepared to really have their plan and model packaged well with a nice bow on it.  They need to expect it will take longer than they think and cost more than expected to reach all the investors they need to see their deal to get to the ones that will in invest….generally 1 in 15 invest.  They also need to be aware of what terms of the deal will make the deal go better.  Valuation must be in line.   With all this, a company can raise capital in this market and it is better to start now, because even if angels are sitting on their cash, they will be during due diligence and getting to know the entrepreneur and when the get up off of that cash, the entrepreneur that has done the best job of building the relationship and justifying the investment will receive it at that time.

So, is it a good time or a bad time for Angel Investors?

Listen to Karen’s comments now!

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Is This a Good Time To Invest or Seek Venture Capital?

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