Angel investors: Wings clipped, but still taking their time in the candy store

Image by House Of Sims via Flickr

I checked in with veteran angel investor and expert John May about the state of angel investing. May, who is Managing Partner of the New Vantage Group, which manages the accounts of a number of angel funds, and who founded a  bunch of angel groups and is chairman emeritus of the Angel Capital Association, not only has a  broad perspective on the topic but also is usually an upbeat person.

He wasn’t too encouraging.

As some studies have shown, the recession has done a number on angels’ personal wealth and appetite for investing. They are investing  but, mostly, that means putting more  money into their existing portfolio companies, propping them up while they wait for venture capital deal-making to revive and worry about just how long their money’s going to be tied up and they can exit. They’re also taking twice as long to do their due dilgence compared to before the crash. (That’s about a four month process now vs. about two months previously). The startups that used to get their early funding from angels, after their initial friends and family rounds? They’re really out of luck.

He’s hoping for a pick-up as early as first quarter 2010. But, that’s the optimistic view, he thinks, because not only does there need to be proof of a recovery with staying power, but angels have to start feeling that old confidence again, and that will take at least a couple more quarters.  (In fact, I think angel confidence is going to lag way behind significant signs of recovery.)  “The serious angels will always be there,” he says. “But the new money–they’re shell shocked.”

The nice part for angels is the candy store effect. They can pick and choose their deals and, from their perspective, the valuations are great.  For you, dear entrepreneur, however, there is not much positive here.

But there is a lesson:  Bootstrapping is probably your only choice, but, also the best, since you’re not likely to be able to negotiate terms that are vaguely favorable.  (For a brief discussion of bootstrapping, check out this post from the Entrepreneurial Mind).