In a recent article, the Wall Street Journal reported that the number of U.S. households with a net worth of at least $1 million (not including one’s home) fell from 9.2 million in 2007 to 6.7 million in 2008, and the number of households with investable assets of $1 million or more fell from 5.2 million to 4.4 million from 2007 to 2008.  The Security and Exchange Commission’s definition of an accredited angel investor is having either high net worth ($1,000,000 or more) or high income ($200,000 plus for single people and $300,000 plus for married couples).

A 27 % decline in the number of millionaire households and a 15 % decline in the number of households with investable assets of $1 million or more almost certainly reduce the amount of accredited angel investment.  And those investors who are accredited have less money to invest in the first place.

Given this climate, as an entrepreneur, you are going to have a more difficult time finding accredited investors.  Furthermore,  when you find them, you are going to have to demonstrate that your deal isn’t very risky and will provide higher returns.

According to the Center for Venture Research report on angel investing in 2008, women investors make up 16.5% of the angel market, and only 15.7% of the entrepreneurs seeking capital are women.  Of the number of women seeking capital, 9.5% actually received angel investments during 2008.  While the number of women seeking capital is low, the percentage that receive funding is in line with the overall yield, suggesting there isn’t a bias to fund male-owned companies.

I wonder if women generally represent 15.7% of the entrepreneurial population.  Anyone have any data on this?  It would make the percentage seeking capital in line with the ratio of male to female entrepreneurs.

Minorities represent an even smaller fraction.  Only 3.7% of minority-owned firms presented their deals to angels, and only 3.6% of angels are minorities.

Read the entire report on angel investments in 2008 for more interesting tidbits.

According to the University of New Hampshire’s Center for Venture Research (CVR), Angel investors continue to be the number one source of seed and startup capital for entrepreneurs. A total of 55,480 entrepreneurial ventures received Angel funding in 2008, a modest 2.9% decrease from 2007, and the number of active investors in 2008 was 260,500 individuals, virtually unchanged from 2007.  But the dollar volume decreased 26.2% down to $19.2B.

What this means is that angels aren’t doing fewer deals, they’re just investing less money per deal.  Maybe this is because they are being more conservative.  Maybe it’s due to lower company valuations.

In fact, I recently read that the average angel investment is $10K.  I was suprised by that number, in all of the deals I’ve seen, the lowest has been about $25,000, with the top deal being around $100K.  There’s a rare investment over $100k, but not often enough to become significant. I don’t know where the author is getting his data from, but I’d sure like to see it.

In 2008, only 10% of companies reviewed by angels received funding – which was also a shocking figure for me.  I thought it was closer to 5% or less.

What does all this mean to you, the entrepreneur?  Keep your valuations low, don’t expect angels to put in a lot of funding, and you need to get in front of a LOT of angels to find the ones that will be most interested in your deal.

Read the entire center’s report on angels investment analysis here.

There are services popping up over the web that allow you to pitch your idea online.  I’ll start a running list here as I come across ones – and if you know of any that aren’t listed, please let us know!

Richard Branson’s Pitch TV: Upload a 2 minute video, and the team at Pitch TV will select their favs.  Users will then vote on the top videos, which will then be shown on Pitch TV – an inflight channel on Virgin Atlantic Airlines.  Your pitch could literally be seen by thousands of investors and business leaders as their confined to their chairs at 30,000 feet.  I wonder if you still violate a state’s SEC regulations at 30,000 feet?

Vator.tv – This site used to let you upload your pitch, but now I can’t find that functionality anywhere.  My guess is they’re learning about the legal restrictions of handling online pitches!

In an effort to take advantage of the downturn, Google announced its new $100M fund, Google Ventures.  According their website, its not just for potential acquisitions.  Google is looking to invest as a traditional venture fund – in areas of high growth potential including software, hardware, biotech, internet, clean tech, and others.

Given the amount of resources Google can bring to the table, I’ll be personally interested to see how this fund fares.

I love recessions (depressions, take your pick) – it’s the best time to start a business.  Warren Buffet has said on numerous occasions that he sells when everyone else is buying, and that he buys while everyone else is selling.  If you expand that concept just a bit, you might arrive at the conclusion that it’s great to be aggressive when everyone else is conservative, like now.  Here are all the great reasons now’s the time to start your business:

1.  Few others are starting companies now.  Most see entrepreneurship as too risky to launch during uncertain economic times.  Furthermore, lots of startups are going out of business.  All this boils down to less competition for you.

2.  Labor is CHEAP!  And I mean CHEAP!  There is so much highly-skilled out-of-work talent wandering the streets in hope of salvation; its a great time to grab partners, employees, and contractors on a fraction of what you would have had to pay them a year ago.

3.  Office space is CHEAP!  In some places, we’re seeing office space at less than half of what it was a year ago.  Landlords are panicing, and in many instances you can get office space for the cost of the expenses.  Also check into companies that have laid off workers – you can often rent an office at a couple hundred bucks a month.

4.  Infrastructure is CHEAP (and in many cases, free!).  Know what it costs to manage an email server these days?  Zero.  How about shared server space?  Zero.  Conference calling?  Zero.  Hell, Quickbooks has a free online version.   I pay $1/mo for the ability to receive faxes online.

5.  Your job isn’t that secure anyway, and you probably don’t even like it.   Nothing makes you feel more alive than being on the edge.  It’s amazing how creative you can get when you’re relying 100% on your own abilities to stay afloat.  Yes, it’s scary and stressful.  But its fun.  And to be honest, working in a job you don’t like and thinking you might be laid off is scary and stressful too.  Might as well be empowered by the stress and fear by taking control.

6.  Operate your business out of your home and your office space and some of your house expenses can become a tax write off. Okay, this isn’t specific to recessions, but it’s always a good reason.

7.  Angel capital is scarce.  Why do I think this is a good thing?  Many entrepreneurs start businesses assuming they’ll raise capital, but few succeed in doing so. If you start your business assuming you won’t raise money because there isn’t any, you’ll start to focus on the best kind of fundraising – sales.  It’s sustainable, scalable, and the cheapest kind of investment.

Make sure you do your homework first though.  Research your market and validate your concept prior to launching.  It’s one of the biggest mistakes most entrepreneurs make.  So quit thinking about it, get out there, and execute.

As an entrepreneur, you are either running/growing your business, or you are raising capital. Even the most talented entrepreneurs can’t do both simultaneously. There’s a great saying in entrepreneurship; fail fast. This is true not only of your business, but also when raising money.

So how do you know when it’s just time to move on and focus back on your company? Here are some tell tale signs you are barking up the wrong investor’s tree.

1. They don’t return phone calls/emails. Okay, obvious, but I had to throw this in there. Some entrepreneurs think being aggressive will help, and while its true sometimes, many times its not. Don’t forget, investors are social and they talk to each other. Piss off one of them, and you’re likely to give yourself a negative reputation without even realizing it.

2. They don’t follow up after the first or second meeting. If you’ve actively pursued the investor and they just don’t follow up, take the hint. If you want to keep him/her engaged, it’s best to start asking for advice here and drop the fundraising.

3. Let me introduce you to… While not a hard and fast rule, if an investor passes you off to someone else, this generally is a bad sign. The referral will ask the referrer why he/she didn’t invest, and the answer will be honest.

4. You are hearing the same objections over and over. I’m always amazed at how rarely entrepreneurs don’t hear the objections from an investor. Take all feedback seriously, incorporate the suggestions into your business, and then try again. Don’t just keep running your head into the wall.

5. Keep me updated. This has become a trendy phrase I hear lots of investors use to say “no thanks”.

According to Angelsoft’s Deal Funnel, only 5% of the deals they see end up getting funded.  In fact, only 18% of the companies that apply to an organized investor group (angel or otherwise) make it through the initial application screen.  Then only 9% actually get to present, with 5% getting funded.  This number is actually surprising to me, it indicates that half of the companies that are invited to present get funding.  I bet that number is much, much less.

What does that mean for you?  Since only 18% of companies are making it past the initial screen, you’ve got to be prepared (obvious!).  You have to be ready for funding.  Ready for funding isn’t the same thing as needing funding, a point that is often difficult to get across to entrepreneurs and the reason why only 18% of companies get past the application process. Here are a few key things that groups look for in terms of readiness:

1. The business is incorporated
2. There is more than 1 person on the project, and they are full time
3. You have a patent or trademark to protect your IP
4. You have a working prototype
5. You have at least 1 paying customer, or proof that people will buy it
6. You have a go-to-market strategy other than “we’ll hire a sales guy” or “we’ll do a Google ad campaign”
7. You have a thought out revenue model with a realistic set of financial projections
8. You have a well thought out and written Executive Summary with all the necessary components
9. You have a board of advisers or directors with experience in your market

Some of these points are difficult to swallow for most entrepreneurs.  How can you quit your day job and work on your business unless you raise money?  But here’s the thing.  Without the above pieces, all you really have is an idea.  And ideas aren’t worth the napkin you wrote it on.  Successful businesses are about execution, that’s where the value comes in.

So before you go applying for funding, do a gut check and make sure you’re ready.

This month has been a flurry of new partnerships, with the latest addition being InvestorAvenue.com.  They offer both online and in-person forums to help match entrepreneurs to investors and are an up-and-coming player in the field.  Looking forward to a long and fruitful relationship with them!

This is a new one – a study out of the UK has just raised money to examine how hand gestures of entrepreneurs affect their fund-raising capabilities.  They’ll be filming,  analyzing the footage, then following up with the success rate of those pitches.  I can’t wait to see the results!  I’m in the process of contacting them, so I’ll let you know more as I learn more.