Bad Times are Good Times for Startup

Studies show that the best time to start a business is during otherwise bad times, when the economy is down. That’s because you’ll find cheaper services and supplies, and other ingredients that go into starting a business. Then as the economy improves, you can rise with the tide.

Angels, independent investors that back a new business, know that and they know they can earn impressive returns–one study says about a 27% average return in 3.5 years, another says between 20-40% is typical. The risks, of course, are steep. Start-ups have a notoriously bad success rate. After all, they have almost no cash flow and no operating history.

Still, a quarter of a million angels pumped $26 billion into 60,000 ventures last year, according to the University of New Hampshire’s Center for Venture Research. Angel groups funded, on average, about seven companies each in 2007.

But these investors aren’t going to invest in your company because they like your smile. They know it’s critical to keep emotions in check, and they won’t cut you some slack. “You make money in angel investing by killing off your losses early, as quickly as possible,” one said. “Entrepreneurs really believe that success is just around the corner, and you’ll quickly go broke investing in ‘just-around-the-corner.’

The biggest fallacy is that most people think that if they have a wonderful idea the business will take care of itself. But the character of the entrepreneur, they know, is more important than the idea. And the market is more important than the product.

Do you have what it takes? Well, then what are you waiting for?

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