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. – The Angel Capital Association (ACA) has reported a 10 percent decrease in angel investments in 2008 versus 2007. In their recent report, we are seeing the direct evidence and implications of the slowing of angel investment that started in the early fall of 2008, along with a forecast that it will continue through 2009. Nevertheless, some angel organizations have continued to invest strongly through this year and will continue to look at new deals next year.

Angels Feel the Downturn

The entire private equity food chain is feeling the effects of the economic downturn and the results are the same for angels as they are for venture capital and investment banking. In this case, the source of funds for angels has been squeezed considerably with the market decline, causing them to pull back on making new investments. This is the same effect we see in the private equity firms that get their funds from private institutions whose investment portfolios have been similarly squeezed.

New Opportunities Exist

The most astute angels see opportunity though. There will be some very good deals to be seen in the coming months as valuations are tamped down and investor preferences are increased. The issue is whether or not they have enough money to make these new deals. The issue they face is that they need to keep more money in reserve to shore up their current portfolio of companies, because their companies are going to have a very hard time raising any new capital in the coming year. Any company that can’t see its way through the end of 2009 with its current capital infusion could be in serious trouble. This is why angels are asking their portfolio companies to tighten their belts by driving sales while cutting cost and expense.

More Syndication May Help

The ACA report points out that syndication among angel organizations could become much more important than ever before. The demand for angel financing is going to continue to be strong, but less money is available to invest. By having multiple angel organizations participate in a single investment opportunity, more deals could be made while increasing portfolio diversity and reducing risk.

No End in Sight

We are only seeing the early signs of what is happening to the private equity world. The whole venture capital industry is in turmoil and could undergo significant changes in their investment priorities and opportunity selection. This will have significant implication on angel investors who may have to carry more of the load to bring companies through their early life. Stay tuned.

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.