"Infrastructure, technology, health care and energy companies could do well -- if you have a software program for road construction, for example," he says. "Your business model should be situated for the current economy."
Shane puts it in stronger terms. "You really have to figure out if your business is appropriate for angel investors. A lot of people are just wasting their time."
Stephen Sammut, a lecturer at University of Pennsylvania's Wharton business school who also has been an angel investor and entrepreneur himself, identifies several types of angel investors. More and more angels are teaming up with each other rather than investing alone.
Perhaps the most sophisticated angel group is the Silicon Valley's Band of Angels. "They made their own wealth through technology ventures," says Sammut, now a partner at venture capital firm Burrill & Co.
"They understand the dynamics of how these companies work -- what kinds of research and other advances are necessary -- and they understand the continuum between angel investing and venture capital." Investment from friends and family comes first, then angels and finally venture capital.
Assessing angels' value
At the other end of the sophistication scale are wealthy individuals ranging from doctors to lawyers to owners of retail and manufacturing businesses. "These angels, especially those with significant managerial experience, can be of tremendous value to the entrepreneur" as advisers, Sammut says.
The mental value of angel investors is nearly as important as their monetary value, experts agree. "Angel investors are generally looking to get involved in the business," Robbins says.
"They are de facto agents or helpers for the business who can bring expertise sitting on the board, for example. The big issue is to be patient to make sure the person is the right fit for your business. If you've started a telecom company, you would prefer having a retired Lucent executive rather than a radiologist."
Remember that you give up an equity stake in your company in return for the angel's money, so you want to make sure you get a full return on your own investment.
Some angel investors want warrants and options on top of their ownership shares. Sammut recommends against these deals if possible, to avoid complicating the ownership structure.
One way to avoid them is by valuing your company at a realistic level, so angel investors don't think they need anything beyond their equity stake to justify the investment. In light of the country's financial and economic crisis, your valuation of the business may have to come down.
A low valuation would be part of the pull for an angel investor in this market environment. "This is a good time for angel investors, because valuations aren't robust," Robbins says.
Strategies for appeal
Shane points out that you will have to use different strategies for finding individual angels as opposed to groups of angels. "Groups are organized and looking for deal flow," so they are easier to find, he says. Online searches should turn up groups in your area.
"For individuals, you have to network your way to them. Part of that is knowing what you're after. Individuals aren't generally interested in cold solicitations," Shane says.
Angel investors tend to look more favorably upon entrepreneurs who are willing to invest some of their own money in their companies. "Angels like to see someone with skin in the game and serial entrepreneurs who have experience, even if it's just as an investor," says the University of New Hampshire's Sohl.
And a checkered past doesn't necessarily represent a disadvantage, he maintains. "If entrepreneurs went bankrupt in the past, that's often seen as an asset rather than a liability, because they have learned -- as long as they don't blame it on everyone but themselves."
Of course the most important factor in making an angel investment work is finding an investor whose aims exactly match yours -- "vision alignment," as Sohl puts it.
"This is a marriage without a divorce," he points out. "The choices are just bankruptcy or an exit for the investor. If you have conflicting interests, that's a disaster. Unfortunately, most entrepreneurs jump at a check. You must remember that vetting is a two-way street."