Aug 19, 2009

Angel Investors Become a Little Less SoBy James FlaniganNYTimes.com

Entrepreneurship is as vibrant as ever in the American economy, but the capital that finances new companies is still in retreat. Venture capital is running at the lowest levels in more than a decade, and angel investors, who invest in far smaller companies than venture capital funds do, are holding back, too.

The reasons for the cutbacks begin with the recession. Angel investors — typically individuals with more than $1 million who join together to back start-up companies — have seen their net worth decline. And these days, many angels find they need to offer additional support to companies they’ve backed in previous years, rather than take on new commitments.

Then too, payoffs seem farther away. “The exit strategies are more difficult, public offerings are really not available, and acquisitions of small companies by large ones are fewer these days,” said Alfred E. Osborne Jr., senior associate dean of the Anderson School of Management at the University of California, Los Angeles, and a founder of its entrepreneurship program.

The clouded environment has not dampened the energy of people wanting to start a business, but it has caused some angel groups to take a look at the cost of coaching entrepreneurs and listening to their pitches. Some groups have started levying fees on entrepreneurs for guidance on finance and introductions to sources of capital.

For example, FundingPost.com, a network of venture and angel investors, holds meetings between entrepreneurs and investors, charging for the get-togethers and for prepping entrepreneurs in the art of presenting their stories to venture and angel groups.

Recently, FundingPost held its first event in Los Angeles and drew more than 100, including 16 angel and venture investors and 18 hopeful entrepreneurs, who paid $350 for a two-hour tutorial. Start-up companies that wished to make a 20-minute presentation at the meeting had to pay $2,000.

Read complete article.