An article in the Wall Street Journal about a "cash crunch" for startups has thrown the tech world into a mini-panic.

Fred Wilson of Union Square Venture partners has the smartest take we've read so far, which is that the only reason there's a "crunch" is that there are now just a mind-boggling number of startups competing for a finite number of users and a finite amount of cash.

Good, differentiated startups are still able to raise all the money they want, Fred says. But he and his partners are now so deluged with business plans that he feels like the "Annie" casting director who spends all day fending off mothers and red-haired daughters at casting calls only to arrive home and have yet another red-haired kid pop out of a bush and start singing "Tomorrow!"

(Our analogy, not Fred's).

And of course you don't need to be a genius to know how this will end.

It will end the same way it always does: In a bust.

Most of the current crop of startups seeking funding are "me too" companies rushing to get in on the action that began back in the dotcom bust (and then again after the financial crisis) and, unfortunately, they are late to the party. Many of these startups will go bust, and many of the early-stage investors who fund them will get clobbered. And then, for a while, the startup game won't seem so fun anymore, enthusiasm will cool, and valuations will drop, and then, eventually, a few brave folks will wade into the water again, and the cycle will start anew.

In other words, it's the same as it ever was. Tech's a cyclical business. And we appear to be nearing the top of a startup cycle.

But Fred also makes a great point about another little boom-let that has inflated rapidly in recent years--angel investing.

In the boom phase of the startup cycle, angel investing seems like the greatest game in the world. Why build just one company when you can fund 20 companies and have eager entrepreneurs build them for you? Why put all your eggs in one basket? Why commit yourself to a single opportunity? Why not spread your money around and cash in like the top-tier VCs you've always been reading about?

Well, for one thing, because it's harder to cash in than it looks.

To be clear: It is VERY EASY to be an angel investor. All you need is money and deal-flow.

What's hard is to be a successful angel investor--someone who invests in a few companies that get huge exits, thus producing great returns for your fund no matter what all the other investments do.

And that's where, in past cycles, angel investing has gotten a lot less fun. And it's where (and when) a lot of new angel investors decide that they rather like running companies after all.

Fred thinks we're getting close to the peak of the latest angel cycle. And we agree.

Angels may be topping out, at least temporarily... What happens to every angel is that they start making investments. They get excited. They make a bunch of them. And then two things happen. First, a few of their investments struggle and fail. And second, a few of their investments can't raise money and come back to them for a second round. They begin to realize that startup investment isn't so easy and that they have a finite amount of money they can invest or that they are willing to invest. They pull back a bit, see how things are going to play out, and become a bit more cautious. Given the massive amount of angel capital that has come into the market in the past few years, I wonder if we are seeing some cooling of that market as all the new investors take stock of where they are and where they want to go next.

So, batten down those hatches, angel investors! It could get rough for a while.

And, by the way, go read the rest of Fred's post, which has excellent thoughts on the state of the startup cycle >