Angel investors and venture capitalists are known for closely monitoring the start-ups they fund. With the economic crisis threatening to scorch profitability, they’re getting even more proactive.

Prolific Silicon Valley angel investor Ron Conway sent an email to more than 100 portfolio companies he funds on Tuesday with some blunt advice for navigating the new economic realities. “The message is simple,” he wrote. “Raising capital will be much more difficult now.” (You can read more about Silicon Valley’s struggles here.)

Mr. Conway attached two emails he sent to his companies in spring 2000, saying many of the same recommendations he gave then are relevant today. He added that his long experience funding companies offers “historical ‘pattern recognition.’”

Here’s the advice Mr. Conway imparts:

– Lower “burn rates.” Companies should raise at least three to six months more of funding with cost reductions, including looking at staff reductions, less marketing and cutting operational expenses. “The name of the game in this environment in some respects is survival – survival until conditions change,” Mr. Conway wrote.

– Speed up fund raising. Raise as much money as you can as soon as you can.

– Don’t be too picky about investors. He urged companies to take meetings with any VCs, even those not “top-tier.” VCs will have leverage over entrepreneurs in this economy.

– Aggressively pursue mergers and acquisitions. Nothing like a down economy to get bought.

– Be realistic. Valuations will fall, so acknowledge it.

– Seek partners. Look for corporate partners that will invest money so you can raise more.

What do you think of this advice?

Many small businesses already know that their customers’ spending habits have changed — and not for the better. So, they’ve taken the economic slump into their own hands and gotten creative in offering “recession” discounts and specials. By giving their customers some relief, maybe, just maybe, they’ll provide some cushion to their buttom line.

Here’s what some are doing:

– At Padre’s Modern Mexican in Phoenix, anyone who comes by for the Recession Happy Hour with a foreclosure notice can get a free drink on the menu. (Arizona ranks third on the list of leading foreclosure states.) Another perk that’s to be offered soon to those wary of high gas prices: free rides on Saturday nights (round-trip).

– Below Bar in Denver made its Wednesday karaoke parties into “Recession Sessions,” offering “recession proof” drink specials, like $2 Late-on-Your-Rent Lager (Pabst Blue Ribbon Beer) and a $5 Fill-up (Pabst Blue Ribbon and a shot.)

– In Miami and Los Angeles, Table 8’s “Recession Concession” prix-fixe menu bundles regular entrees, appetizers and desserts for a deal of $38 to $42.

– In New York City, Gray’s Papaya, a 24-hour hot-dog and juice joint, has been offering the “Recession Special” for years. You get two hot dogs and a drink for $3.50; it used to be $2.75, before the rising costs of running a business forced Gray’s Papaya to hike up the price in October 2006.

And when Wall Street imploded, other businesses got in on the action:

– A Hollywood Tans tanning salon in NYC advertised a “Recession Special” offer of an 11-minute tan for $5 (it’s usually $12).

Have you seen other businesses offer incentives related to the economic downturn? Would you be tempted with such an offer?

Photo: Getty Images

by Tomio Geron, VentureWire

For start-ups seeking venture-capital investment, it’s no longer good enough to just present the new hot idea that will bring in tons of revenue.

Given the current dark economic climate, entrepreneurs now also have to present a worst-case scenario to venture capitalists in case revenue falls off a cliff, according to Betty Kayton, a Los Altos, Calif.-based chief financial officer for several early-stage start-ups. Ms. Kayton spoke at a panel discussion with several venture investors in Palo Alto, Calif., Tuesday night organized by Women 2.0, a Silicon Valley entrepreneurs group.

Two of her clients, seeking a Series A and Series B respectively, have been asked to submit contingency plans for how to survive in tough times.

“VCs that were all hot and heavy to jump in have said, ‘Can you please do a nuclear-winter scenario for us and say, if all hell breaks lose, how long can you make the cash last?’” according to Ms. Kayton, who has previously worked as CFO at educational-products company LeapFrog Enterprises Inc. and refers to herself as a “rent-a-CFO.”

Entrepreneurs should come prepared to detail exactly how to make their company last if revenue dries up.

“What I’d suggest is if you’re going in, have it in your back pocket. But don’t put it on your main deck for God’s sake,” she said. “But have it and be prepared to say, ‘Even with no revenue, I can cut expenses. I can cut whatever is necessary to make it last longer.’”

Venture investors are still very interested in investing in early-stage companies, according to Rebecca Lynn, principal, Morgenthaler Ventures and Prasanna Krishnan, an associate at Draper Fisher Jurvetson.

That said, for new companies that have been around a couple of years, the bar is getting higher to raise funding. So early-stage companies should prepare by raising enough in their first round to get to a point of generating revenue by a second round.

“It’s a little tougher. You better be putting some numbers up,” Ms. Lynn said.

Does this seem like a reasonable thing for VCs to require? Have you thought about your business’s worst-case scenario?

It’s been a month since the academic year started, but for some college students, it’s not just about homework and studying for mid-terms — it’s also about running a successful business.

StartupNation.com recently completed its first 20 best dorm-based business competition and found plenty of CEOs on campuses around the country.

These entrepreneurs showed inventiveness and practicality. They hail from the University of Tulsa in Oklahoma (picking-up-pet-poo business) to Grand Valley State University in Michigan (selling a 3D dorm-room modeling service to college Web sites so students can start decorating their space before stepping foot on campus).

Here are some tips on how to launch your own dorm-based business based on these entrepreneurs’ experiences:

1. Embrace technology. Many designed their own Web sites and conducted their marketing campaigns online. You can see Jared Sherlock’s YouTube act as a professional magician above.

According to the contest write-up: “This command of technology is part of what enables these students to be entrepreneurs. No longer does it take a big investment to get a business running or to market it. All you need are an Internet connection, a great idea, some tech savvy and a healthy dose of passion.”

2. Start early. Most of the students in the competition had business experience already – from high school. Andy Tabar, for example, started making money building Web sites as a teen.

3. Say ‘no’ to corporate work. Headlines of layoffs from big companies have turned off these youngsters to being a corporate employee. They’d rather make money their own way.

4. Be socially conscious. Contestants’ social responsibility is on the top of their business plans. Their mantra: You can’t succeed unless you help other people. Idealistic, maybe, but they’re building Web sites that help developing countries, creating a green electronics-recycling company and hosting ocean-conservation events at the Cape Cod National Seashore during the summer.

What’s a business you wished you had thought of when you were in school? Is college too early to even think about starting a business?

The changes at eBay continue.

We’ve written – and heard from dozens of commenters – about how many eBay sellers are upset about the auction site’s gradual shift toward bigger sellers who charge a flat fee (instead of taking bids) and the heftier restrictions on small sellers.

Some recent announcements are sure to further agitate sellers’ fears. My colleague Mylene Mangalindan yesterday wrote how eBay is laying off 10% of its work force and acquired Bill Me Later, a service that allows buyers to delay full payment by paying a small fee.

These changes come on top of those we’ve already written about, including that eBay will soon require all payments be made online via its own PayPal transaction service.

Whether the Bill Me Later acquisition is good for sellers is still up in the air, Scot Wingo writes on his eBay Strategies blog. It’s unclear at this point how Bill Me Later will be integrated into eBay and whether it will be incorporated into PayPal or kept separate.

Bill Me Later is currently a cheaper option than PayPal for sellers who use it on other sites, like Amazon. But whether eBay will keep it cheap for its sellers, or charge the same fees as PayPal, is still unknown, Mr. Wingo writes. Also, Bill Me Later requires buyers have decent credit ratings since it’s essentially giving them a loan. If buyers get denied credit through Bill Me Later, will they take it out on eBay or the seller?

An eBay spokesman did not return a call or email seeking comment yesterday.

EBay Sellers: What’s your take on the newest changes? Is Bill Me Later a possible good thing for you?

Some small businesses are learning very quickly just how dangerous it is to attach their businesses to a single industry or sector. In this story, I took a look at how quickly some companies are sinking because of their attachment to the financial sector, as suppliers of technology, services or products.

There’s no denying that latching on to financial companies was tempting in recent years. The big banks and brokerages were reeling in money — and they liked to spend it. From lavish holiday parties and steak dinners to the fanciest technology in their offices to an endless stream of consultants, they spent and spent. And Wall Street companies were not exactly known for scrutinizing employees’ expense reports.

Those days are over, at least for now. Recent reports say big banks — the ones that still exist — are cutting back on everything, including color copies. That doesn’t bode well for the many small companies that provide copy paper to financial firms, not to mention sushi delivery or car services. They’re either going to have to quickly target new customer bases, change their product offerings for a more frugal clientele, or risk going out of business.

One type of business known to cater to finance types, though, is still doing well, according to this story in The New York Times: high-end strip clubs. “When times are tough, there is no better form of escapism than a night at a gentlemen’s club,” said one strip club spokesman in the story.

Readers, what do you think? Will small companies learn their lesson about serving only one kind of business? Or as a small company, do you have little choice but to follow the money?

Photo: Getty Images

If you’re already running your own business, does it make sense to spend $50,000 or more getting an executive M.B.A?

Last week, I wrote about The Wall Street Journal’s executive M.B.A survey, which asked 4,060 students at 72 executive M.B.A. programs and 455 companies how well these programs develop the management and leadership skills that companies want and students need. Forty-five of the companies surveyed had fewer than 1,000 employees and many of them were entrepreneurs.

Deep into the throes of running a business, small-business owners and entrepreneurs say they are turning to business schools to learn how to do things better. Some are looking to grow their business or expand their core services.

Students say the smaller the company, the faster they can apply what they have learned in class to their businesses. And according to the survey, 51% of small-business respondents experienced tangible results immediately or within one year.

But the survey reports that smaller companies are less likely to pay for an employee to attend an executive M.B.A. program, leaving students to pay the often six-figure tuition tab themselves. Not to mention the time and energy that the programs take away from the often-around-the-clock demands of running a business.

With going to school, running a business and pursuing a personal life competing for your time and attention, at “any one time, you are probably not doing justice to at least one of those aspects of your life,” says Ray McKinney the chief executive of Chemera Consulting LLC, a four-person pharmaceutical-manufacturing software services firm in Philadelphia.

Readers, do you think an executive M.B.A. is worth the hefty price tag for entrepreneurs?

Some politicians don’t think the $700-billion bailout legislation signed Friday can bring relief to small businesses fast enough.

Sen. Chuck Schumer, D-N.Y., yesterday recommended that the Bush Administration set up a special temporary loan fund that small businesses having trouble borrowing money right now can tap. He suggested the government could make the loans through the Small Business Administration, so as not to require congressional approval. Such a fund would require “tens of billions of dollars” in government funding over the course of two to three months, Sen. Schumer said, according to Newsday.

Immediate financial relief is imperative, he said, because it will take money from the bailout at least a month to reach the market and trickle down to small businesses that are currently having real problems accessing the funds they need to run their operations. “We’re already hearing of small businesses cutting back or going under,” Sen. Schumer said.

Though such immediate relief could certainly help small businesses that need cash immediately, it would also be another big bill that taxpayers will foot. USA Today columnist Steve Strauss today had his own ideas for what kind of bailout small businesses need, which you can read here.

Do you think Sen. Schumer has a good idea? Anything else the government can do to more quickly help small businesses facing a credit crunch?

Most entrepreneurs would love to have employees as passionate about the business as they are. But creating an environment where employees feel like owners doesn’t happen magically. You have to carefully breed a culture where employees feel they can take risks, implement their ideas without discouraging amounts of bureaucracy, and benefit personally from the outcome of their actions.

A week from today — Monday, Oct. 13 — we’ll be announcing the second-annual Top Small Workplaces, a joint effort with nonprofit Winning Workplaces. Many of these small employers, including those we featured last year, have developed practices that foster an ownership mentality.

Next week, you’ll have plenty good case studies to read. But until then, here are some thoughts from an article from Babson College and others on how to instill an entrepreneurial culture among employees:

1) Organize small groups. Research suggests employees in small groups or teams rather than one person in a large organization feel they have more ability to innovate, share ideas and influence.

2) Share profits. Whether it’s setting up an employee stock-ownership plan (ESOP), a profit-sharing plan, or even an annual bonus, somehow let employees share in the company’s financial success. Then open the financial books so employees can see how their efforts impact the bottom line.

3) Embrace failure. Make it clear that failures are embraced and learned from as much as successes. Employees won’t take risks if they worry about being blamed or punished for mistakes.

4) Reward ideas. Encourage employees to implement ideas they come up with – and make idea generation a big part of the culture, such as giving financial gifts to employees whose ideas are implemented to frequent brainstorming. So-called open-door policies aren’t enough.

5) Promote risk takers. If others see risk takers thrive, they’re more likely to follow suit.

Readers, what do you think of these ideas? Any others?

Photo: Getty Images

Marketing doesn’t have to be — and often shouldn’t be — a big-budget expense. Often it’s the most creative, attention-grabbing marketing tactics that make the biggest splash.

As part of her WSJ Insight Exchange breakfast series (register for the next one in Austin, Texas on Nov. 13 here), Wendy Bounds spoke to people like venture capitalist and entrepreneur Guy Kawasaki and Anne Zehren of Common Sense Media about some effective guerrilla marketing campaigns and what made them so effective. Watch the video to the right.