Most Startups Shouldnt Count on Angels in 09

What a difference two years makes.

In early 2007, private investors pumped $2.6 billion into the telecom industry. Fast-forward to the beginnings of 2009 and nary an angel investor or venture capitalist is to be found funding tech.

Indeed, angel investors are crucial to startups. Angels are the financiers, often individuals, who lend money – usually less than $1 million – to promising entrepreneurs. A number of tech firms have gotten their start from these, er, heavenly creatures.

But a sagging economy is causing angels to withdraw from financing many small companies.

More than half of the Angel Capital Association (ACA) members said in a survey late last year that economic uncertainty lowered their investment activity. Besides, there’s less money to go around. These angels, like other Wall Street investors, have lost much of their wealth and need to keep any capital for portfolio companies, they said.

The good news, said ACA Chairman John Huston, is the opportunity in certain verticals. In 2009, some angels “might aggressively seek new deals as they see new advantages in lower company valuations but also in fields such as green technologies, healthcare, mobile media and renewable energy,” he said in a December 2008 press release.

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