Question:

Has the downturn caused angel investment to dry up? Also, how does a service company (such as a contractor) go about attracting angel investors? — Rick L.

Answer:

While angel investments have slowed significantly in the last year, they haven’t completely dried up. In 2008, investments fell 26.2% year over year, according to the Center for Venture Research at the University of New Hampshire. However, angels still doled out $19.2 billion to 55,480 ventures.

“During the past few months of this financial crisis people have been scared,” says Yao-Hui Huang, chief executive of Gigapixel Creative, a strategic web design and development firm in New York, who often works with high-growth start-ups. But now, she says she's seeing signs of a turnaround. “I’ve had three angel investors in my office in the last month,” she says. “They are coming out of that shock now and being more aggressive.”

Still, attracting the right investors for your business isn't going to be easy. Make sure you can prove that your company has high-profit potential. Angel investors also look for companies that can provide a return on their investment, usually by being sold to a bigger company or by going public. So it's important to demonstrate why other companies or investors would want to invest in the product or service you're selling. Also, target angels that typically invest in your type of business. Some angels only invest in technology companies or firms in specific regions, says Susannah Malarkey, executive director of the Technology Alliance, an association of businesses in Seattle.

For help in your search, reach out to various angel investor groups such as the Angel Capital Association, an organization of 200 angel groups in the U.S. and Canada. Another helpful resource is the Angel Capital Education Foundation, which provides basic information on angel investing to entrepreneurs.