When to raise money?

Fred Wilson has a good post about what it takes for Union Square Ventures to fund a company. It is always good when VCs are clear on what they are looking for – it makes the entrepreneur’s job so much easier.

While I agree with Fred that the cost of entry is going down, it is all relative. If you are a young entrepreneur with a job, mortgage and maybe a kid, do you quit and just take the risk or do you get a working beta (while at your current job)?

A friend was recently in this situation — he and his partner had a pretty good beta of a product I would use. It was in a crowded space, but the execution was very good and it had those key product touches that could make it the breakout product. My friend was ready to quit to do this full time. He was willing to take the risk and didn’t want to take someone else’s money till he was comfortable there was traction. The partner however wanted the security of some angel funding to quit his job.

With Web 2.0 apps and the whole “cost is going down” argument, even angels want to see traction before they fund a startup. What is the right way for an entrepreneur to proceed?