Any entrepreneur considering angel funding should read today’s NY Times article “Angel’s Flee From Tech Startups“, and some of the followup commentary.

Angel investors, unlike most professional investors, control most of their investment portfolio.  If their equity investments drop (say) 35%, then they can immediately say “whoa!” and dial down their startup investments.

Professionals (e.g. VCs), on the other hand, are investing committed funds from limited partners.  The stock market can drop, but they’ll still have the $300m fund to “put to work” (otherwise, the LPs will ask why they’re paying management fees).  It will take a VC fundraising cycle for the rebalancing to work through the system.

Because of this, I think angel funding for new projects contracts much more quickly in market downturns.  It will be interesting to see if the professionals take up the slack.