No surprise, angel investors are getting cautious. According to a report from the Center for Venture Research at the University of New Hampshire, there was a 26.2 percent fall in angel investing last year, to $19.2 billion. The number of transactions dropped by 2.9 percent to 55,480.

However, this does not mean you should avoid angel investors. After all, there was still a good amount of activity last year. In fact, if the markets continue to improve – as well as the economy – then there could be a pickup in angel investing this year.

"Valuations have come down noticeably, but good companies are still getting funded," said Eric Ries, who has raised money from angels and operates a startup blog. "Angel investors, who provide the critical early-stage high-risk capital for startups, are increasingly looking for traction in the companies they invest in. Most of the angels I know define traction as progress in validating the riskiest fundamental business assumptions of the company. For some companies, that's really about revenue and revenue growth."

Fear and Greed are the topic of the day for CB Stealth (not real name), the internet startup I've been involved with for nine months. So the question is, do you worry more about losing a fixed amount of money, or do you fret more about missing out on the investment of a lifetime?

Well, CB Stealth is now up and running (3 weeks) in its beta test version, which finally happened after jumping some major hurdles. Besides all the issues related to the site's features, before we went live we had to get clearance from our insurers and our legal counsel. This is a major milestone for a internet software startup company that has been tinkering with the product for months now.

Investors have become excited about reaching this point and I will be happier to be able to speak about it publicly once a few more updates are complete. I thought by now I would be able to share more about this new social networking site, but as it is, we are still too small to handle even the current pace of questions and suggestions. We need to work out a few more things before we go big time. The initial product is free and has advertising, but we are now in development of the value added paid product that we intend to release in the Fall.

It is very interesting to be following stories like this in the business journals and to have the opportunity to see it all from the inside as an advisor, and shareholder.

This another of my reports from the inside of an internet start-up. It is very interesting to be involved with something so new and so eventful. Every day it seems some new intrigue pops up. The founders, Howard and Brent, have been excellent to work with. Between them and the key advisory board members, we already have the nucleus of a successful team. Those investors who focus on management as the highest priority have been very pleased.

Yesterday (5/24/07) we had another investor meeting with a small group of people to present the latest progress on CB Stealth, my angel investment. The company has made some major strides in the software platform and raised additional capital since my last report about three weeks ago CB Stealth - our start-up gaining traction. We had hoped to have the Beta site up by now but we have added a few more bells and whistles and we are changing our servers (hardware issues) so it has been delayed until mid-June, or so I have been told.

Interest in CB Stealth from old media companies seems to be accumulating and it seems that, two in particular are anxious to meet with us even before the Beta version goes up. This is all new to me because I have not been involved with any Internet ventures as a principal. If we take on any large investors our valuation will go up and our control over the company will likely go down. One of the key decisions is going to be whether we wait for a higher valuation in six months after we are up and running or we take the cash now which would allow us to ramp up faster.

This is the third in a running series of stories I have been posting about a new Internet company that I am a seed investor in and sit on the advisory board of. I hope to report on the progress of the company from the inside and share my feelings and education about the process, and the progress of the company as it grows. This afternoon we are having another investor presentation. We expect to have our beta site up and running in two to three weeks, and we hope to go 'live' and start building the community a month after that.

New social networking sites are springing up every day and becoming more specialized. When we go live I will be able to disclose more but for now CB Stealth is doing all the right things as we reach for rung after rung. We are not a social networking site -- we are a community. There is a social aspect to our community but it is not the heart of the community. Our business model depends on subscriptions and software sales and support. Targeted advertising will be a secondary revenue generator but our model does not rely on that. We expect some corporate and foundation sponsorship based on the focused community we are growing.

Raising capital is interesting because some people are able to write the check without much hesitation and others fret about all the wrong things, and more often than you would think having the liquidity is not an issue although some use that as an excuse. CB Stealth is getting a big head start by acquiring another smaller and even more focused community that the founders played a role in creating.

For the time being I will continue to write about the start up company I have invested seed capital in as CB Stealth. It is too early to share too much information. Yesterday afternoon we had a presentation for a small group of potential investors that are business associates of mine. This was their second presentation. At the first meeting, I had not invested yet, although I was on the advisory board. It was a productive meeting, and we got to see the latest beta version of the software which is now online, but not for general consumption.

The best part about a meeting like this, even without any firm funding commitments, was simply having so many smart and dynamic people in one room; hearing their questions, suggestions and ideas. It was heady stuff, indeed, and much was accomplished.

Next month we go live so our offer to investors will change. As we move forward and the risks are reduced, the opportunity for investors is adjusted in kind. Think of the Henny Penny children's story (dating myself here...) - If you want to eat some of the cake you need to contribute to making the cake. But for now we were seeking seed money in the form of convertible notes that have a preferred return and very generous warrant coverage. The warrant coverage will be reduced in May and gradually phased out over the rest of the year. Important issues to consider in a start-up business are no different than those of a going concern.

• What is the strength of management?
• Can we create a deep moat around the products and services?
• How big is the market?
• Can we generate strong sustaining cash-flow?
• When do we expect to make a profit?
• Who Is the competition?
• How fast will we be able to scale up?
• Will we be able to attract the right talent to the team?
• What is the exit strategy?

I have been lobbying to stay away from Venture Capital money unless we are forced to take it. So far we are managing to advance the company without it. It will all depend on how fast our product is accepted in the market place and whether we can keep cash flow ahead of the demand, growth and need to scale up. I also think borrowing money is much, much cheaper than giving up part of the company. Stay tuned and I will continue to share this adventure from time to time.

Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out his other posts for BloggingStocks here.

For the past six months I have been examining the possibility of investing in two start-up companies. One was a niche food company that I passed on My angel investing experience -- time to bail out. The other is a web based software company that is still in stealth mode. This one I did invest in and I thought I would share the differences between the two and what you should consider before you make the commitment. Playing the role of an angel investor is not for everyone. You need to have greater depth of understanding in the area you are investing; as well as business and finance; you must be a "qualified investor" meaning have a minimum level of income and net worth, and must be able to evaluate and accept the risks.

The most important criteria to me (after the power of the idea) is the integrity and expertise of the founders. Are they capable of accomplishing their mission and will they do so in a professional and ethical manner. The founders of both start-ups were very knowledgeable about their industries and had accomplished some level of demonstrated success in the past with related enterprises. However, the first constantly raised questions in my mind about transparency and ethics, whereas the second one which I invested in clearly was making that a cornerstone of the business. I need go no further regarding the first company, since they failed the first hurdle. The second company, which for now I will refer to as CB-Stealth flew over the hurdle easily.

A few months ago I posted a story about a possible new niche organic food company I might invest in. The founder of the company was looking for seed capital and follow-on funding. He has been developing the product for several years and has most details of his business plan worked out. However, he has no funding as of yet, and while he has numerous connections in the food industry, he is light on all of the other things that go into the management and execution of the business. Based on four months of discussions and assisting him as part of his unofficial advisory board, we moved closer to striking a deal.

My own knowledge of the food industry is severely lacking, and I am not very well-versed in retail sales or distribution either, but many of our skill sets were complimentary. The founder is a family acquaintance (caution lights blinking) and I was interested in helping him out if I could. I do believe the business is viable.

We got into discussions more recently about whether to go public (penny stock) or stay private. The potential to raise capital using different approaches and, most importantly from my perspective, how critical it was to start up with a bang or take a go-slow approach. This proved to be one of our major points of contention. I was in favor of bootstrapping the company along and not taking on very much debt, funding growth out of profits. My associate wanted to scale-up fast and was willing to take on greater debt to develop a few additional products that he had in mind to expand the line, even before we had established the initial product in the market. While I credit him for knowing his industry and the potential market, my own general business principles started to be tested.

Since I could not offer much of my time, I introduced my entrepreneur friend to another good friend that does have the time, knowledge, capital, and experience to help with the execution of the business on a full-time basis. He was actually looking for his next venture and has a personal interest in gourmet food. His experience also includes business development and international sales for a Fortune 500 company -- perfect I thought. Just like the big venture capitalists, I would bring cash and business leadership and all would be right in the world.

Last Monday night I had a meeting with a friend (JW) who has been developing a new company over the last six years and has reached the point where he needs angel investors to help get the company to the next level.

I am sharing this story for those Blogging Stocks readers who are interested to learn more about how angel investing works -- both from the perspective of the company seeking funding and the investor considering ponying up cash.

I have done some fundraising on a small scale in the private equity market and have been an "Angel" investor once before, and approached many times. My first adventure in this arena has been a total loss to date, and is a real long shot to make a comeback.

In the case of that product, a plastics additive, the experience and execution of management did not equal the quality of the product. The learning curve of key players in the organization took longer than it should have and they burned through capital faster than the product could be successfully introduced into the market place. They have backed up a few steps and I understand that they are experiencing some sales growth. But their future is still a big question mark.

JW's company has developed a line of packaged gourmet meals, focused on health food (he brought some impressive samples) that are already on some chain store shelves.