As in any big recession, lots more people have been starting their own businesses. What's fascinating for me is how few actually had to. Most of my acquaintances who've started companies in the past 18 months, weren't laid off. But, they were bored and feeling tapped out at their jobs. When companies lay low to ride a recession out, inevitably your most inventive, risk-taking executives start to get the entrepreneurial itch.
My friends, often well connected 40-somethings, had no trouble finding that first angel round of $50-200k, usually called Friends and Family. Especially if you've had some career connection with the Internet, most of us have a few old bosses and colleagues who've retired, obscenely rich, to the hills beyond Silicon Valley or Austin. And then there's your 401k that's sunk so much that you may as well take out the remainder and put it into play.
Unfortunately perhaps, that early round comes in so easily that some people spend it too easily. Few people manage those first funds by assuming they'll have to bootstrap the rest of the way. I think they figure the next round will go swiftly too. So, having spent all available funds but the site or software is still only partly finished, they go looking for the next round.
And it's the second round that's the bitch nowadays. That additional $100-900k that you need just to finish off your site or service build and get it into market. "Looks great! Call me as soon as when you have some revenues and you need at least $1 million." the professional venture guys say.
I'm not personally looking for money or investing money these days. I'm just dispensing advice. My advice is:
#1. Treat each injection of cash you receive as though it's your last.
#2. Don't allow any of your executive team to spend the majority of their time fundraising unless they either (a) take no salary and are not good at anything else to do with building the company, or (b) it's going incredibly well (in which case you probably have revenues and are looking for more than $1 million.) Fundraising can easily suck all the oxygen out of the room so little else gets done... and the clock is ticking!
#3. If your vision is a mansion, but you only have enough money to build a corner of it, design and build that corner so that you can move in and live there while you save up to build the next room and the next room. Don't waste your money pouring a massive, mansion-sized foundation and then have nothing left to build anything above ground.
#4. Avoid, at all costs, going into business with friends, relatives, and former colleagues even if they are unemployed, bored to death at their companies, and/or agree to invest in the company too. The only possible exception: friends, colleagues, and relatives who have been serial entrepreneurs in negative economic times with a track record of wearing multiple hats in new, uber-tiny organizations.