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Angel investors assess role in financial crisis

As entrepreneurs scramble for financing in this dark economic time, many will be tempted to look at angel investors for the capital they need to grow, or perhaps to merely survive, as financing and credit sources dry up.

But a survey of angel investors up and down the West Coast suggests a variety of opinions on what those entrepreneurs are going to find in the way of willing support from those angels.

Mike Flynn’s Blog: http://www.emikeflynn.com/

Angel investors, of course, are individuals who provide, either individually or in group, capital for business start-up or expansion. Angels are perceived as "filling the gap" between traditional sources of financing, from friends and family to banks to venture capitalists.

But with financial institutions in disarray and credit sources tightening to near non-existence, questions are emerging in the entrepreneurial community about how, or whether, angel investing might really be able to, or interested in, filling that now-gaping financial gap.

This survey of angel investors is by no means scientific, since it only includes angels who are either friends or business contacts of mine. But I’ve tried to create the broadest geographic spread I could of those I e-mailed to ask for their thoughts on angel investing amid the current financial crisis.

Perhaps the gloomiest view came from Kevin Cable, executive vice president of Seattle-based Cascadia Capital, who observed that "angels tend to pull back when they feel poor, (and) most have lost real money,"

"I have no intention of doing any angel investing in the next year or two for two reasons," Cable offered. "I’m saving my own powder, and I don’t want to get crushed by the first institutional money that comes in."

On the other side, almost, is Mike Elconin, a San Diego-based member of the San Diego Tech Coast Angels, which he chaired last year.

"If I had to make a prediction it would be that we’ll see a four to six month lull in angel financing, with a rapid increase to slightly above average levels after that," Elconin offered.

John O’Donnell, founder and executive director of Bozeman-based TechRanch, who is both an angel investor and a venture capitalist, sees a dramatic slowdown in angel investing between now and the end of the year.

O’Donnell, who is a founder of a Montana private-capital network but is now also a Montana-based partner with the Seattle venture firm Buerk Dale Victor, notes he thinks "this is a good time to be a private-equity investor.

"Those with dry powder should do well if they have a five-year time horizon, he says. "So even though it may be a great time to invest, it is likely angels will not be doing much investing in the near term."

Jon Eliassen, longtime Spokane business leader and former president of the Spokane Economic Development Council who is now active in an array of angel-investment activities as managing director of Spokane-based Terrapin Capital Group, says "angel investing is now more important than ever." But he fears the current impact could "last for months."

Eliassen is optimistic that "we will see former executives and successful entrepreneurs continue to be available not only to fund great ideas in start up companies, but to participate on boards or be part-time executives as well.

Todd Dean, who guides Northwest operations for angel-group Keiretsu Forum, suggests that "with the economic times we are in, it is vital for our country to focus some of our energy and capital towards angel investing."

Dean estimates that, despite the current situation, the total dollars his angel members invest this year will be "up 10 to 15 percent over a year ago."

Mike Wilson, the interim executive director of Spokane-based Connect Northwest, an organization for entrepreneurs and investors, said he suspects that "not only will availability of early-stage capital be affected but valuations will be pushed down. However, that could have good long term impacts as it could result in better returns that would encourage more angel stage investing."

There’s a potential irony, however, that the angels may have missed. It’s that the very depth of the current financial crisis and the government intervention to try to reverse it could lead to a new environment in which super-charged returns might only be available in angel investments or similar high-risk situations.

Here’s how that could come about: as the government makes it clear by its actions it plans to take a hand in defining the "free enterprise system," it may decide that vast profits are unacceptable, except with vast personal risk.

Mike Flynn’s Blog: http://www.emikeflynn.com/

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