The credit crunch is good for angel investment

As world equity markets look increasingly anaemic, local angel investment looks all the better.

The credit crunch has resulted in significant equity losses for a number of investors, and caused people to be more generally more risk averse. However there are a significant number of savvy investors who cashed out of listed equity early on in the cycle, and haven’t overexposed themselves in property. I know a number of investors in New Zealand who are currently sitting on larger-than-usual cash holdings.

Angel investment is a real opportunity for such investors in that they can take a rain-check during the storm in global equity markets, invest in businesses in which they can have a direct influence, and still have the potential upside that results from being able to deliver smart money into startups.

Economic turbulence doesn’t stem the flow of ideas from clever entrepreneurs, and can even be a stimulus for game changing ideas and technology.

In Wired Magazine’s recent article “Credit-Crunch Angels: They’re Still Out There“, they say that in this environment, angels might be “asking tougher questions, choosing later-stage companies, or investing smaller amounts” … and of course, applying more pressure to valuations.

Bottom line: the current dynamic environment is still full of opportunity for entrepreneurs and angel investors.