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Morgenthaler said the number of venture capital firms has shrunk to 760 a year ago from a peak of 960, vanishing at nearly 10 percent a year as investment money dried up. He predicts that would continue for the next two years.

Yogen Dalal, a managing partner at Mayfield, said the numbers may shrink for the next five years and that it may not be a bad thing.

“You do have these boom and bust cycles where fear and greed play off each other,” he said during a panel discussion.

Navin Chaddha, also of Mayfield said that the amount of money available for start-ups needed to drop by half for good returns to come back. By that he meant that only $4 or $5 billion should be invested in startups instead of $1o billion. About a third of the $30 billion each year goes directly to start-ups.

The only time your lawyers will be honest with you in the venture raising process is when you interview them. After that don’t trust anything they say because their motivation is to close the deal and get the fee.

Everyone needs to go and pitch a VC first and expect it to fail. That first pitch will suck no matter what. Bring a business partner who is silent. Have him or her watch the interaction. Every time the VC falls asleep or makes a derogatory statement, your partner writes that down, and you go and fix it.

All you need is a PowerPoint. Make it 20 minutes. Do not throw in detailed financial statements. You are basically throwing a giant hunk of steak into a lion’s den and rolling around in it. Numbers is their business. They will tear you apart.

VCs talk amongst themselves. Most entrepreneurs fall into the classic mistake of pitching serially. There is no such thing as confidentiality. Your materials will be seen by dozens of VCs the second you pitch. It gets worse, if a VC likes you, they will tell the other VCs that you suck. You want to hit as many funds as you can,. I recommend trying to hit 30 funds in two weeks. Typically, you will get one term sheet per 10 pitches.

I guarantee you your first term sheet will be bad. They will lowball you, then they will pressure you to sign it quickly. Hold off. Your goal now is to get the second or third term sheet. Without other offers there is no market.

VCs say we will co-invest. They are trying to share the offer. Tell them, “No. Why don’t you make me an offer? I will evaluate the offer separately.” Do not let them syndicate the deal or merge the term sheets.

There is no confidentiality. Everything you send out will be seen by your competitors.

FundingUniverse.com offers speedpitching events in several states. They aren’t so much a public launch event, but they are a great way to reach local angel investors.

Where can you find a way to reach a group of early stage VCs all at once, rather than making the trek to Sandhill Road in the heart of Silicon Valley or hanging out at Buck’s Woodside Restaurant, where more venture deals have been done than anywhere else on earth?

The VC Forum brings a number of Silicon Valley venture firms to cities around the country to meet local entrepreneurs and look at potential deals. One Provo Labs company is actually presenting on September 28th at VC Forum in Salt Lake City.

Another option is the Silcon Valley Association of Startup Entrepreneurs. I received an email yesterday from Jennifer, who represents SVASE, and she asked me to publicize one of their upcoming events. So here it is:

   Ask how any of his relevant portfolio companies relate to your startup idea (and make sure that you’ve visited the web sites of those relevant portfolio companies). 

·        Ask what other startup deals in this space has he looked at,

·        Where does his interest in the space come from,

·        What does he see as the major problems facing any startup in this area, etc.