How many companies get venture funding?

February 14, 2010 at 2:40 pm 1 comment

First-time technology entrepreneurs who are just getting started, here in Michigan at least, tend to believe that they need to raise money from venture capital firms. This represents the popular belief that venture funding is the gateway to technology business formation. Let’s call this the mind-share of VCs as a source of funding. Based on anecdotal evidence I’m going to estimate it at 90%.

This led me to a search for facts and here is what I found:

According to the MoneyTree Report published by PricewaterhouseCoopers and the National Venture Capital Association, in 2008, 1,171 companies were funded for the first time by venture capital firms.

According to the money tree report for 2008 first-time deals for 2008 were 1171 for 2007 were 1299 for 2006 1201 for 2005 1019 for 2004 921 for 2003 753 for 2002 836 and 2001 was 1213.

According to the Kauffman Index of Entrepreneurial Activity (KIEA) published in April 2009, over 6 million businesses were formed in 2008.

According to the Kauffman Index of Entrepreneurial Activity approximately 530000 new businesses were created each month

First time venture deals in 2008 1,771
Number of businesses created in 2008 6,360,000

Compared to my impression that VC mind-share is 90% among first-time technology entrepreneurs, the reality is that only 0.02% of new businesses are VC funded.

The KIEA does not break out high-tech businesses but categorizes businesses as low, medium or high-income potential. The high-income potential businesses are approximately 20% of the total. Comparing VC funding of first-time deals to the total number of high-income potential new businesses in 2008 we can estimate that only 0.1% are venture funded.

Where are you spending your time?  Take this short poll:


Sources:

MoneyTree Report
https://www.pwcmoneytree.com/MTPublic/ns/moneytree/filesource/exhibits/National_MoneyTree_full_year_Q4_2008_Final.pdf
The slide image is from a presentation found at:
http://www.docstoc.com/docs/DownloadDoc.aspx?doc_id=3764346

Kauffman Index of Entrepreneurial Activity 1996-2008
http://www.kauffman.org/uploadedFiles/kiea_042709.pdf

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Entry filed under: new venture, raising capital, startup.

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1 Comment Add your own

  • 1. Be Successful, not just Popular  |  January 25, 2012 at 2:08 pm

    […] fact, you should be aware that the vast majority of new businesses do not receive venture funding. FirstSaleFirst reports that venture capital data from 2008 shows that a mere 0.02% of new companies that year […]

    Reply

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