I want to follow up Peter's great post about angel investors with my two cents from the perspective of an angel investor.  In addition to all the great advice in that post, it's important to note that angels are generally bypassing companies that don't have customers yet.  They might get involved to mentor the team to prepare them for money, but they won't risk their money in this economy until the business is revenue generating.  

Why? Because a lot of angel investors have lost their shirts when the entrepreneurs they were backing couldn't get follow-on funding or secure bank lines of credit to keep growing.  It turns out that, more than ever before, your access to FFF money (friends, family, and fools) and your own personal resources are going to be critical to your ability to successfully launch your business and raise outside capital later on.

Angels are not the only investors rethinking where they place their money.  VCs are having trouble raising funds, finding deals they want to invest in, and securing the ability to exit the deal due to the almost non-existent IPO market. Remember that VCs manage other people's money in addition to their own. Data tracker VentureSource reported in the Wall Street Journal that in 2008 125 U.S. venture funds raised $13.6 billion.  That was down from 203 funds that had raised $28.7 billion in 2008.  We're seeing a big shakeout in the venture capital world and it won't stop anytime soon.  Consider that in 2005, there were 1,023 active VC firms (Thomson Reuters and the National Venture Capital Association) and today there are 794 firms.  The only reason that number is not lower is that most firms set up their funds for 10-year cycles. Those firms that will be reaching their 10-year point will have a decision to make: do we try to do another raise or call it a day. Some VCs like Draper Fisher Jurvetson and Opus Capital stay in the game by offering lower fees to their investors. Other firms like Austin Ventures are shifting its focus to private-equity deals requiring $15 million to $25 million in capital.

If you look at the top 10 venture-backed companies, you find that they range from Pacific Biosciences in the health care industry producing high-speed DNA sequencing instruments (#1) to Solyndra in the energy industry making cylindrical solar panels for commercial rooftops (#5) and HomeAway (#3) in the consumer services industry providing online service for vacation rentals (I've used them and they're great).  You can find the top 50 venture-backed companies here. 

So what does all this mean to you?  There's still money out there, but you have to move your start-up farther along the development path before you have a chance to access it.  That means you need to build those networks of FFF money--it's still the mainstay of early-stage entrepreneurs.