Editor’s note: “The Angel Connection” is a regular feature in WRAL Local Tech Wire. LTW asked consultant Bill Warner to share advice for entrepreneurs seeking angel investors and/or venture capital investment. He is chairman of the Triangle Accredited Capital Forum, an angel investor network with over 100 members throughout the Southeast.

RESEARCH TRIANGLE PARK, N.C. —
Watching the economic news unfold over the last two weeks was like living a bad dream.

Like most dreams, it was a slow moving series of events that brought us closer and closer to economic disaster as the flow of credit became more and more constipated.

Financial institutions are failing, including our own Wachovia Bank, coming off the failures of Lehmann Brothers, Fannie Mae, Freddie Mac and others. The administration put guns to our heads, telling taxpayers that they had to pay $700 billion or else the world as we know it would end. Congress denied all accountability and served up some more pork to fix the problem, moving us closer to the abyss of socialism. John McCain gave a head fake of leadership, while Barack Obama again ducked and wove his way to looking like the almighty savior with a few good speeches.

Angels will cut back

So, there in that bad dream stand angel investors, whose portfolios of investments are being crushed by the resulting market downturn. But, the dream is not over. We still have not gotten a complete awakening of what is going on and what else is going to drop on our heads.

Angel investors are high-net-worth individuals who have a broad array of investments, less than 10 percent of which is in high risk start-up companies. These are not liquid investments, so they will certainly continue, but they will want to see more aggressive strategies for exits as they will be willing to take a lower return to cash out earlier. Chances are they are going to pull back on making any further investments until the economy stabilizes and they find out exactly where they stand. Getting them interested in a new investment in a startup is going to be extremely difficult. Many of them are going to move to more mature companies that represent lower risks, as the venture capital world did coming off the downturn in 2001.

Entrepreneurs are at risk

Entrepreneurs already have a tough enough time getting their companies launched without investment money and credit drying up. This is not just a bad dream, it’s a nightmare.

They are hit in two fundamental ways. With continuing market depression, it will become even harder to find financing for start-up companies. Sources for grants, loans and equity investment are going to be harder to find.

Existing start-up companies are going to suffer in their day-to-day operations. For the limited amount of credit that will be available, the terms for borrowing money for new equipment are going to be more onerous, almost making it worse than spending valuable cash to purchase equipment outright. Lines of credit that fuel the short-term needs for cash will be only for the select companies that have the strongest of backing to collateralize loans.

A perfect storm of incompetence

We have been deceived and let down by about every agency that should have been protecting us. No matter what you hear from whatever biased news source you encounter, there is blame everywhere.

We now are living in a perfect storm created by their incompetence, and it is not over. Meanwhile, the taxpayer is going to pay the bill for the results of a dysfunctional Congress and an ineffective administration, all of which have not looked out for the best interests of the public and the businesses that drive our economy. The fear lingers as to what further surprises are on the way.

About the author: 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.