This is a guest post by Christopher Grey, a contributor to TheStreet.com and the co-founder and CFO of CapLinked.

Grey was a senior executive and partner in private equity, finance, and banking for 15 years. He was directly involved in the origination and management of billions of dollars of debt and equity investments.

Other members on CapLinked’s management team include Eric Jackson, former VP Marketing at PayPal, and Dave Schwartz, former CTO at National Payment Network.

Nearly three years after the worst economic downturn to hit America since the Great Depression began, politicians, economists, business leaders, and commentators are still debating how to get the economy moving again.

Unemployment is stuck at 17.5% if you look at the broad measure that includes discouraged workers and labor force dropouts.

Business spending is stagnant.

GDP growth, even though it is artificially inflated by government stimulus, is weak, as is consumer spending.

Main street banks and businesses are still hurting and afraid to take on any risk.

Even state and local governments are slashing jobs and cutting budgets.

The only groups doing well are the Federal government and Wall Street, which is no coincidence since they are one and the same entity.

Yes, that’s right.

It’s well known that the Federal government and the Federal Reserve bailed out Wall Street. What isn’t common knowledge is that the existence and daily operations of Wall Street, the Federal Reserve, and the Federal government are inextricably connected.

They have a deeply symbiotic relationship. Even as Wall Street howls in protest over financial reform and politicians campaign against Wall Street, they need each other to survive.

The Treasury and the Fed need Wall Street to keep the government bond market functioning properly. This is critical to funding everything that the government does.

Wall Street also creates the appearance of a transparent financial market for everything from stocks to commodities to corporate bonds. Of course the market is anything but transparent, but Wall Street and their facilitators and the Fed, Treasury, and the SEC have a vested interested in making people believe that it is.

Regular investors are limited in what due diligence they are even allowed to do on investment in public securities. If investors, especially foreign investors, lost confidence in our financial markets, our entire system would collapse. Like it or not, Wall Street, the Fed, and the US government are joined at the hip.

The unfortunate consequence of this is that you need to go outside of Wall Street to find real capitalism and entrepreneurship. Private companies cannot rely on government backing.

Small- and mid-sized private businesses have the real risk of failure. They and their angel investors are the real risk takers. In the market for private capital, there is no reward without risk.

The good news is that the rewards for taking risk in that market can be larger than anyone ever dreamed. This is especially true in technology. Even during this terrible economy of the past few years, investors in private technology companies such as Facebook, Zynga, Mint, Linkedin, Quora, Twitter, Groupon and many other businesses have reaped extraordinary returns—returns that Wall Street can’t match.

Angel investing beats investing in Wall Street because it provides a chance to make significant money and you can do as much due diligence as you want. Even better, you can personally get to know the people running it.

Obviously there is also the risk that you can lose money. Any investment in a private company whether small or large, no matter what industry, and no matter how much due diligence you do, is a risky bet. However, you will at least have more control over your own analysis rather than just accepting what is spoon fed by Wall Street and will benefit more on the upside if the business does well.

Admittedly, I’m biased in speaking about this topic. I’m a co-founder of a software business called CapLinked. CapLinked is a secure, collaborative network for private companies, investors, and advisors to interact with each other.

Companies can use CapLinked to raise capital, do investor relations, and share information with their board, advisors, and key employees.

Investors can use CapLinked to manage deal flow, close deals, manage their portfolio, and share information with their companies and their advisors.

Advisors can use CapLinked to manage their deals and share information with their investor and company clients.

I’m passionate about helping private companies, investors, and their advisors. Capitalism is what this country needs to get things moving in the right direction.

Wall Street is corrupted by its connections to and dependency on government.

Real capitalism is happening on Main Street.

CapLinked is a tool that can help Main Street businesses, their investors, and their advisors to succeed. That’s why I co-founded this business and why I’m writing about it. It’s currently free to anyone who wants to use it. Please take a moment to check it out if you think it’s something that might be valuable to you or someone you know.

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Rob Delman (aka "Golden Dude")

Another brilliant guest post by Rob Delman, a professional angel investor and the managing director at Golden Seeds in New York. He’s proud to be nicknamed the “Golden Dude” by his female forum mates.

I have noticed a disturbing trend lately when listening to entrepreneur pitches at various angel investor forums. The investor has a “burning question” that cannot wait until the Q&A portion of the presentation (at least it shows they are listening) and interrupts the entrepreneur.

C’mon people, let the entrepreneurs finish their pitch. There will be plenty of time to ask questions afterwards. Write it down so you don’t forget! We have told them that they only have x minutes to present and they have most likely spent considerable time honing and refining their pitch to meet these guidelines. With interruptions, they will most likely never finish their presentation and then we will penalize them for not being focused and getting to all their slides. On the flip side, I guess this is also a good reason for them not to have a lot of slides. If you are interrupting to “test” the entrepreneur’s ability to perform in a stressful situation, the initial presentation is not the time.

It is our responsibility to be respectful of their pitch and effort. What else can we do (and not do) during and after the pitch?

• Make them feel welcome and comfortable while still maintaining professionalism.
• Praise them when appropriate and give criticism when warranted – honesty is crucial for everyone’s benefit.
• Be accurate in the number of investors in the room so the entrepreneur can bring the correct number of deck printouts.
• If you advertise the forum as an investor event, make sure there are actually investors in the room as opposed to all sponsors and service providers looking for clients.
• Temperature in the room should be comfortable.
• Block out ambient noise from the hallway and adjacent rooms.
• Provide a glass and pitcher of water.
• Make sure tech is set up with remote. Nothing is worse than having a tech glitch at the beginning of the presentation. Discourage the use of “live” content from the internet.
• Put e-devices away – only exception should be computers if you are genuinely using them to view their website or do quick research during the pitch. However, even this will divert your attention from the presentation.
• Have a timekeeper and give them 5 minute, then 2 minute warning. As timekeeper it is your job to start and end on time.

The entrepreneur is already feeling a lot of stress. Let’s not make it worse!

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This is the second in a two-part series.

In Part 1, we took a look at how ABC’s reality show “Shark Tank” gets some key angel investment concepts wrong. In the second and final installment, we’ll offer five things the show gets right.

A Japanese import, “Shark Tank” has helped thrust angel investing and entrepreneurial spirit into the spotlight. The show throws hungry small business owners before a panel of self-made millionaires.

Entrepreneurs pitch their investment proposals and look for a specific dollar amount from the sharks. In return, the investors seek a percentage of ownership stake. The real-time negotiations play out in an ultra-public setting that, at times, makes for combustible debate — passionate entrepreneurs who’ve poured their lives into a startup rarely take defeat well.

Some of the show is closer to make-believe than anything resembling “reality” television. Valuations, time frames and negotiations are all warped or misconstrued for the benefit of the neat TV package.

But “Shark Tank” doesn’t get it all wrong. In fact, here are five things the show gets right about angel investing:

1. Points for Presentation

The Sharks don’t shy away from ripping an entrepreneur for a lackluster investment proposal. While some of the bluster is no doubt for the TV audience, there’s definitely a pragmatic foundation there. It’s seemingly common sense but needs to be reiterated: Presentation matters. One that’s cobbled together or that reflects a certain degree of seriousness, professionalism or general knowledge isn’t likely to inspire confidence or investment.

2. Smart Money

Entrepreneurs should seek smart money. The investor should hopefully be able to add value more than just the dollar investment. Small business leaders solely in search of dollars are almost always doing themselves a significant disservice. Some of the smart entrepreneurs target particular Sharks because of their past experience with similar ventures. Likewise, the Sharks often pursue a venture where they feel they can add significant value or will pass on deals where they have little to offer.

3. Smart People

Ideas without great management are not worth much. Talent is key and so is the ability to execute. Having IP may be the only other thing that helps make an idea valuable, but the IP is partly a result of execution and management. The Sharks are often wary of companies that lack a strong, visionary leadership who can generate results with the funding dollars. The general investor should be, too.

4. Valuations Vacillate

Valuations fluctuate wildly and there is no standard method. This can be seen in the wild fluctuations proposed between the sharks and the entrepreneurs. Entrepreneurs looking for a plug-and-play formula for valuations need to prepare for uncertainty.

5. The Elevator Pitch

There’s a duality inherent in “Shark Tank” when it comes to the pitch itself. In the real world, the thought of investors making a decision after reading a plan and listening to a few minutes of presentation is hard to fathom. At the same time, the show offers entrepreneurs solid examples of why cultivating a sharp “elevator pitch” is extremely important. It also illustrates how key it is for entrepreneurs to craft a compelling story for their vision.

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This is the first in a two-part series.

ABC’s reality show “Shark Tank” has helped bring the concept of angel investment to the mainstream. Millions of Americans who had never even heard the term now tune in each week to watch hard-working entrepreneurs pitch their investment proposals to self-made millionaires.

In the show, entrepreneurs are forced to sell their ideas and themselves before an imposing panel of investors. These small business practitioners must ask for a specific amount of money from the investors, who in turn seek a percentage of ownership stake.

Entrepreneurs typically unleash a torrent of impassioned pleas, tears and promises of future profits. The sharks, meanwhile, poke, prod and push to find holes or weaknesses in business plans and revenue models, all the while jockeying for position on the really standout pitches.

In essence, it’s reality television at its tension-building best. Too bad it’s giving viewers a warped view of what angel investment is really about.

Here are five ways that “Shark Tank” gets it wrong, along with the bad lessons it’s teaching entrepreneurs and angel investors.

1. Pre- and post-money valuations

In one episode, an entrepreneur says he is seeking $250,000 and will give up 1/3 of his company. The investor then questions the entrepreneur, asking how he can justify a valuation of $750,000 when they don’t have much in sales.

Here’s the problem: The shark isn’t correct in his valuation. The entrepreneur is not valuing the company at $750,000. He is valuing it at $500,000. This is the pre-money valuation or the valuation before the investment. Once the investment is made, the company would be valued at $750,000 — with $250,000 of that coming from the investor. And that $250,000 would get 1/3 of the post-money valuation. So the entrepreneur should not be forced to justify how the company is worth $750,000.

Instead, he should need to justify a $500,000 current (or pre-money) valuation.

2. Wacky company values

In the same episode, the investor claims valuations are based on a multiple of revenue or profits. However, this is not accurate in a startup or early-stage company.

Valuation amounts are generally placed on other things such as management, market potential, intellectual property and a few other key essentials. Sales can help justify a higher valuation, but they are generally given very little weight for startups and early-stage companies.

3. Unrealistic time frames

On “Shark Tank,” investors and entrepreneurs shake hands and seem to agree on a deal very quickly. But deals of any real merit are very rarely done without a significant amount of due diligence to help verify claims, checking out the entrepreneur and other things common in any due diligence process.

The idea of a quick shake and a sudden influx of capital runs counter to the measured and deliberate nature of angel investing. Angels didn’t make money by blindly rushing into business deals while relying on gut instinct alone.

4. One-track negotiations

When entrepreneurs and sharks are negotiating a deal, the focus is entirely on the valuation of the company and the investment amount. While these are clearly important to both stakeholders, the terms of investment deals in the real world of angel investing include a wide array of other cornerstones. We’re talking about things like stock options, liquidation preferences and so much more.

5. Adversarial relationship

For the most part, “Shark Tank” makes it seems like angels and entrepreneurs are pitted against each other. But it’s really not a zero sum game. Both sides are fighting earnestly for the same thing — to build a successful company with terms that provide mutual benefit and long-term growth.

Stay tuned for Part 2 of the series.

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As an angel investor, have you ever sat in a room listening to a pitch and have had no idea what the entrepreneur was talking about? Do your eyes glaze over while your hands reach for your BlackBerry?

So often, I find that entrepreneurs forget that angels are typically a little knowledgeable about a lot of things and very knowledgeable about nothing. If the entrepreneur is speaking “above” the audience but is still engaging, they may stand a chance of obtaining funding but it is doubtful considering the multitude of opportunities available for angel investment. It is easy of course to put all the blame on the entrepreneur but at the end of the day, we share some of the responsibility as well.

Lately, I have found a very effective way to combat this situation. It takes some effort but if you want to really give every pitch the full attention it deserves, it can be worth it. The vast majority of entrepreneurs submit their applications online via Angelsoft. This is a wonderful piece of software written by angels for angels.

Check with your angel group to get a schedule of presenting companies at your upcoming forum, log onto Angelsoft and see if the entrepreneur has uploaded a video or any other supporting documents. This is also a great time to review their application and do some very light due diligence of the people, product, competitors and industry.

We are all experts at using Google (although personally, I now prefer Bing) so now is the time to show off our skills. Take no more than 10 minutes to enter search keywords based on their application. Also review the company’s website and do a search for the founder/CEO. If you are going to hear 6 presentations, this will take no more than an hour which is time well spent if it enables you to engage proactively with the entrepreneur and ask probing, but appropriate questions during the Q&A part of the presentation.

Remember, it is the responsibility of both the entrepreneur and the angel to come prepared to the pitch!

VH: This is our last post until New Year. Happy Holidays to all venture igniters!

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