Cashed out: start-ups face a funding dry spell.

• Author: Koritz, Alex
• Position: Focus

Business investing in Utah is, if not in dire straights, certainly stalled. Entrepreneurs needing funding or businesses needing cash injections must be patient until liquidity is available. Funding sources from banks, venture capitalists, private equity groups and angel investors are quickly diminishing.

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According to Alan Hall, entrepreneur and investor, there isn't going to be a lot of available money in 2009. "Companies will need to manage better their cost structures, find new streams of revenue and cut costs where possible," he says. "What makes a business run is increasing sales and profit margins which then pay overhead costs. In a good economy, companies have profits left over to reinvest into themselves. But because of the cautious behavior among businesses and consumers, these extra profits aren't there. Unless this behavior changes, we could end up in a greater mess then we're already in."

Utah's economy, although not immune from economic woes, still ranks among the nation's best. According to a recent report from the American Legislative Exchange Council, Utah ranked first in the economic outlook for 2009. What then does the state's investment landscape look like?

Angels with Clipped Wings

Angel investors are organizing themselves into groups or networks to pool their investment capital and buffer against the economic storm. For instance, the UtahAngles group has invested $16 million in 39 companies since 1998, including Omniture and MyFamily.com.

The current economy has taken a toll on angel investors nationwide. "The most drastic change to the angel community has been the loss of liquidity," says Hall. A majority of wealth is tied to the stock market, which is hitting all-time lows. Since wealthy shareholders do not want to sell shares in the current market, cash for investments is less available. Even real estate, a traditional safe haven, is not being leveraged or sold. "Because cash has dried up, there is very little participation from the angel community right now," says Hall.

Other financial experts say this timid behavior is understandable. "The reality is most angel investors have lost money and many are sitting on the sidelines, observing. There is certainly a state of fear right now," says Brock Blake, CEO of FundingUniverse, a company that connects entrepreneurs with angels, venture capitalists and other lenders. "Because of this loss, there isn't a lot of money flowing right now. This has...