“Since venture capitalists have put the brakes on investing in startup companies, angel investors are in the driver’s seat — and they’ve grown very choosy about who they’ll bring along for the ride,” writes Stacy Forster in today’s Wall Street Journal.

“Named after the so-called Broadway angels known for funding plays and musicals in New York, these wealthy individuals give fledgling businesses the time and money they need to grow and mature in return for stock or a share of the profits.”

“Many VCs and angels got burned as the tech bubble burst, after throwing too much money at risky business ventures that eventually went belly up. But while venture-capital money has dried up over the last year, angels continue to pump money into startups.”

” ‘It’s the bottom of the cycle,’ says John May, head of the New Vantage Group in Vienna, Va., which manages venture funds for early-stage investments. ‘The good news is that it’s a broader base of angels … and a healthier entrepreneurial structure than we saw a few years ago.’ “

“There were about 400,000 angels investing some $40 billion in about 50,000 seed-stage ventures a year ago, the Center for Venture Research at the University of New Hampshire reports. That number now stands at about 350,000 angels, investing $30 billion in the same number of companies.”

“Conversely, venture capital has fallen off sharply. In the fourth quarter of 2001, VCs invested just $7.1 billion in new companies, according to the National Venture Capital Association, down 65% from $20.4 billion in the same period a year earlier. Venture-capital firms are investment companies that invest their shareholders’ money in startup businesses.”

“Angels say that while they haven’t cut back sharply on funding they’ve become more judicious in where they invest, with many listening to pitches from “institutional-quality” companies only. What they’re looking for from entrepreneurs, says New Vantage Group’s Mr. May, is a recipe straight out of a business-school textbook: talented management, solid revenue and a proven track record.”