What’s the view for angel capital in 2009?  How has it changed from 2008?

Morrison:  We have lower risk tolerance.

Fenwick-Smith:  We can’t count on the money that’s been flowing around historically…angels are now focused on cash-flow positive businesses above all else.

What do you look for in a company before investing?

Fenwick-Smith:  I focus on near-term prospects in green technology.  Angel investors, unlike venture capitalists, can’t afford to play the numbers game.  We’re looking for companies that have a plan.  I find the obsession with exit to be formulaic — you have to think about how to create a business that pays dividends, not one that will be acquired.

Morrison:  As an angel, I’m motivated by the viability of a business and its team.  Is the entrepreneur bringing hard questions to me?  Do they understand and clearly state their own expectations?

What capital sources do you recommend?

Morrison: I like to see how far my dollar can be stretched.  Capital efficiency is key.  The support of friends and family is somewhat of a necessary endorsement in these times.  Support from a federal program such as Small Business Innovative Research grants can be key.

What makes entrepreneurs stand out during the due diligence process?

Fenwick-Smith: PowerPoints make no difference to me!  Polish doesn’t count…90% of the strength of a potential investment is in its people.  I’m looking for attitude, how they answer questions.  The figures are always wrong, but I accept that innate optimism and instead go with my gut.

Morrison: You have to remember that there’s no specific point in time where due diligence starts or ends.  It begins the second you meet for the first time.

Is Colorado still fundable?  Where does Colorado stand in the angel investment mix?

Morrison: The ecosystem for business still exists, but it’s harder to penetrate.

Fenwick-Smith: We’re in a climate right now that fuels startups.  Colorado is definitely a brighter spot for sustainability and organic products, and the big VCs come here often, which is a good sign.

Is there a hot industry or trend for investors?

Morrison: The hottest industry is the one in which you have the most passion or knowledge.  Still, I’m seeing growth in entitlement healthcare, military, and energy, especially with this new administration.

What are your recommendations for entrepreneurs?

Fenwick-Smith: Hunker down.  It’s gonna be a difficult year, no matter what stage you’re at.  It will take longer to receive your POs, and most businesses will either be affected by, or use, the recession, resulting in a slowdown.

Morrison: Go for partner wealth.  Look for money, look for help — and understand what it is you need.  Partner well and you’ll do well.

What’s the role of failure for entrepreneurs? Do you ever tell them to quit?

Morrison: It’s basically required. I’ve been in situations where plans have been reshaped to the extent that the founders want to quit.

Has the economy affected angel investors’ appetite for investment?

Fenwick-Smith: In my experience, it’s harder than ever before.  Why would I put money in an illiquid investment when today I could buy discounted or distressed real estate and turn it around?  It has to be the right project and right team, even more so today than ever before.

Morrison: The appetite for investment hasn’t changed, but the risk-to-revenue ratio has.  I’m now looking for profit versus exit.

Photo courtesy of Aunt Owwee

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