What’s it REALLY like trying to raise capital these days?

Are you trying to raise money right now?

Unless you are the CEO of YouTube or Google, you know that this is not the best time to go looking for money.

But what’s it really like trying to raise capital these days?

This recession has hit some early stage companies really hard. Entrepreneurs are telling me their revenue is down 20% to 40%. That strips out opportunities for product development, not to mention the impact on cashflow.

In addition to the challenge of finding paying customers, the other issue is that investors are scaling back. If it was hard to raise money in the past, it’s harder than ever now.

Sorry, but it gets worse. Not only are investors scarce, but then there’s the issue of valuations…

Don’t expect to see your valuations increase. You may well have to go back to investors at the same valuation, or even lower. Now is not the time to be aggressive on valuations.

Venture capitalists are keeping more money in their pockets to help out their existing portfolio. They are less likely to take on new investments.

The interesting feedback I received from entrepreneurs is that, even though things are tough, it is not any more difficult to get meetings with investors.

But the trick remains sorting who is actually investing, and who is simply window shopping. On the investor side, many are either (a) out of money, (b) have money that’s only available to support existing companies, or (c) are too busy looking at selling their stakes in the secondary market to be able to focus on you.

Here’s some ideas to cope in this environment…

Money is scarce right now for everybody, so no-one cares where you’re getting it from. If it used to look bad to do many small rounds in a row, to take money on the same valuation as you had before, or to scale back your team, well, do what you gotta do.

If your startup is alive and stays alive for the next two years then you’ll be doing better than most.

Raise an internal round. The easiest way to extend your runway is to make drastic and deep cutbacks. Cut now and cut deep. Then move on.

Wait. If your company is growing when others aren’t, but valuations are half of what you’re looking for, then it might make sense to keep bootstrapping, double your revenue, then ask for a better valuation. Or at least position yourself so it’s possible to do so.

If you are looking for seed money, forget about it and bootstrap. Get to revenue. Ideas and hype are worth nothing now. Paying customers, healthy cashflow, and clear paths to profitability are more important than ever.

Pre-screen investors. You can waste a lot of time right now meeting with investors that are doing their best not to invest.

Use government funding wherever you can. Although, I’ve got to say that this funding is drying up faster than the Murray Darling basin. And I wouldn’t expect too much from the budget tomorrow.

Give up. The businesses that struggle to get attention won’t succeed in these times. It’s OK to work for a consulting company. Get back into the startup business when things improve.

Is your company trying to raise money right now? Are you a startup investor? What has your experience been like? Let us know in the comments below!

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Gail Geronimos, is the founder of Achaeus, which helps entrepreneurs develop their businesses and she has just started a new site www.pitchingtoinvestors.com with tools and tips about how to develop killer presentations to raise capital.

To read more Gail Geronimos expert advice, click here.