Angel Investment - Harder to Get For Entrepreneurs

Bill Warner Sunday, November 02, 2008

In the midst of this economic mess, entrepreneurs wonder what the heck just happened to their chances of getting angel financing. They have done all this research on their business, proven that their business idea has commercial merit, gotten grants to assist them in the early process of forming their business, gathered friends and family financing to get into a position to be able to launch their companies and now are faced with the end of the road before they get a chance to go to market.

Getting needed financing is always tough, but now it is going to be even tougher. Here’s what they are faced with:

  • Government budgets are going to come under scrutiny which will impact the lucrative grant programs that are available today. This means that the proposals that are submitted for these programs have to be even more compelling and address a strong and urgent need.
  • Foundations whose investments are also in the public markets are going to experience lower returns which will reduce the amount of money they will be able to offer to new business ventures. As with government grants, the pressure is on the entrepreneur to have a stronger and convincing story to justify the foundation grant.
  • The limited partners of venture capital firms will also feel the pinch in the markets, putting further pressure on venture firms to perform. Raising further funds from limited partners for venture capital will be more difficult as well. As entrepreneurs approach venture firms, they are going to have to show greater returns over a shorter period of time, and the risks have to be well mitigated.
  • Angel investors will back away from new investments, unless they see a clear winner that they will be able to get into at a very attractive price. Start-ups are going to have to show a very attractive market opportunity and accept lower pre-money valuations as they have to offer more of their company in order for investors to mitigate their risk.

All of this means that entrepreneurs are going to have to be a lot more diligent. Agencies that offer grants, angels and venture firms are going to be much more selective. Here’s how entrepreneurs are going to have to react:

  • Entrepreneurs will need to propose businesses that reach profitability and positive cash flow much sooner than ever before, because they are going to have less money to get their companies

Filed Under: Angel Investment, Financing a Company



Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.

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