How to Win the Venture Capital Race

Raising venture capital is one of the hardest jobs for an entrepreneur in any economy. But in a recession, it takes even more convincing to get people to part with their money.

Venture capital funding fell 26% last year to $19.2 billion, according to the Center for Venture Research at the University of New Hampshire. The number of projects that earned angel funding declined 2.9% during that time even though the number of active investors remained the same. Deals were 24% smaller.

Market conditions will require entrepreneurs to be more thorough, thoughtful and aggressive with their pitches. Angel investor Bill Payne, author of the self-published Definitive Guide to Raising Money from Angels, looks for endeavors that have management teams in place, a product or prototype to show, and interested customers. The company should have the potential to generate $30 million a year.

If you're trying to woo investors in a weak economy, be sure to have:

Experienced managers: At least one member of your team should be an expert in the industry you're targeting. Investors are reluctant to take a chance on an endeavor run by inexperienced leaders.

Accurate financial data and realistic projections: Investors will expect companies to explain in detail how they set their goals. Sales estimates will need to be attainable.

I recently attended a fundraising workshop held by FundingPost, a company that connects venture capitalists with entrepreneurs. One of the attendants pitched a plan to start a software company that he said would generate $400 million in sales in five years. But he had yet to develop the product he planned to sell. Investors will likely consider the business too risky to back.