Securing funding for a startup has always been a challenge, but entrepreneurs seeking to start a business in Southern California are finding that they need to be more creative as venture capitalists scale back their investments.

Ryan Buckley dreams of transforming Hollywood through Scripped, a free online screenwriting software, but financing his business has been a challenge. The venture capital community is reeling from the effects of the recession and Venture Capitalists are shying away from new startups as they look for reassurance in more mature companies with higher chances of a payout.  Instead, Buckley has been weathering the downturn through the support of friends and family.

“We’ve managed to raise angel money, we’ve raised $100,000 dollars in two years. The first round was family, second round was friends and family, and this round was just friends,” says Buckley. “We haven’t moved into venture capital. These people are like us, believe in what we are doing and aren’t phased by the fact that we still don’t have a revenue model.”

Venture Capital firms have shifted their strategy of early stage investments with high risk but high returns in favor of later-stage investments. According to this year’s Global Venture Capital Survey, 51 percent of 725 venture capitalists surveyed are decreasing the number of investments made, whereas only 13 percent are increasing the number of companies to invest in. But there are still opportunities for solid business ideas.

“They are not going to take a chance like the run up to this, but there is money out there, for good businesses, there is money out there. I work with several investor networks and they are looking for good investments,” says Kathy Allen, a professor of entrepreneurship at the University of Southern California’s Marshall School of Business and an adviser to startups.

Entrepreneurs aiming to start a business in Southern California are facing increased competition for investment dollars. Although California accounts for more than half of the venture capital investments made in the U.S., Southern California only has about 12% of the venture capital dollars and 1/20th of the venture capital per capita of Northern California. 

Despite the high cost of doing business in California, Buckley remains optimistic as the economic climate has presented new opportunities.

“We are near or at the bottom rung as far as cost goes and our products are already positioned there prior to the economic downturn. Since the economy has flattened out if anything our products have become more attractive.”

Beyond that, Buckley is offering his services to other startups to stay afloat.

“I’ve seen startups bootstrap by consulting on the side, that’s essentially what we’ve done. Two of our partners do work for other startups doing web development and design. So our CEO works full time for Applied Materials. Two of us now are freelancing doing other startups on the side.”

And that is precisely the flexibility that entrepreneurs need to adapt in order to weather the recession.

“Businesses have to learn how to stay flexible and can’t be so burdened by overhead and debt that they can’t survive the downtime,” Allen says.