The 1% Venture Capital

Every year data is released to the public on the amount of capital flowing to start-ups. This year was no different. There are numerous articles on the level of VC funding thanks to CB insights and companies like Pitchbook and Mattermark.  

However, we need to put into perspective that venture capital funding is not the primary source of funding for early stage companies in the US.

According to the Gallup-Wells Fargo Small Business Index of March 2014, 356 of the 435 small business owners surveyed (82%) used personal savings to finance their companies. Other forms of funding included acquiring loans (38%), help from friends and family (30%), and credit cards (31%). While raising money through crowdfunding on a rewards basis grew by 524% CAGR in 2014,  only 3% of companies indicated this as a funding source.

Small Business Trends cites that only 1% of early stage companies raise money through venture capital. This means that all the other companies out there find other sources of capital. The use of personal savings and credit cards is another way entrepreneurs fund their companies. These two ways to raise money showed huge growth in the last several years. There are strong reasons entrepreneurs may or may not want to fund your company from your own resources. When raising capital, consider all the options. Decide if you want to give away equity and assess your chances of success based on the strength of your business model and revenues. Also, consider crowdfunding to test your product and to get those first orders. Entrepreneurs might have a much better chance at setting themselves up for success with a crowdfunding campaign than chasing after venture capital funding.


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