Common Angels: "This is not our Recession, it's Wall Streets."

"As an investor, I wish we would get over all this hampering." Remarked James Geshwiler, Managing Director of the Common Angels, as he began his discussion of raising angel financing at last night's Web Innovators Group.

The recession has caused venture capitalists to pull in the reins. Geshwiler said one general partner even suggested to him that "a lot of [VCs] could be on the sidelines for four or five years." I'm sure you've already heard that financing for startups will be harder to come by now and in the coming years. Venture capitalists become more conservative in uncertain markets, mostly because they manage other peoples money. However, its different for angels since they invest their own.

While many tails are shooting between their legs, James Geshwiler takes a step back to ask if the conservative investing is really necessary. Does the state of the economy warrant a different strategy? His view differs than the popular belief discussed in the blogosphere and claims that "this is not our recession, its Wall Streets...ours was in 2002." He continued to explain that compared to then, "the tech sector is in better shape" and that although it seems like a terrible time to invest, in reality, "risk isn't up that much, its just changed."

How has risk changed?

While financial risk is very high (no stunner there), competitive risk is way down. It will be harder to count on follow-on investments and syndication will go from tough to nearly impossible. [Syndication is when investors bring in other investors to bring in more money for a particular deal.] However, recessions can actually favor and help entrepreneurs. The main point here being that competitive risk goes way down. There is reduced threat from existing companies who are unable to manuever as nimbly and aren't looking to increase risk by competing as aggressively with new products and ideas. Additionally, their will be fewew VC-backed chasers.

In general, market risk remains mixed depending on the sector and company. People risk is down because talent (who usually move between startups and early stage companies frequently) become scared and rather focus on keeping their jobs. Attrition can be problematic for startups. It's partly why there are so many perks, besides providing the necessary upside to keep the risk-reward relationship balanced. All while product risk remains unchanged.