Raising Capital For Startups: 8 Surprising Statistics
1. One-Third Of All Small Enterprises Begin With Less Than $5,000
However, the financial investment required from founders to finance a business may not be as large as you assume.
According to the findings of a Kabbage survey, one-third of small enterprises begin with less than $5,000.
Less than $5,000 in startup funding is a pittance compared to the mammoth sums raised by many digital businesses.
If you plan to establish a business using personal funds, equity or debt, the financial implications of doing so might be frightening.
However, if one-third of small firms can get started with less than $5,000, the consequences may not be as terrible.
2. Only 0.05% Of Businesses Receive Venture Capital Funding
Approximately 0.05% of small firms raise startup venture capital. Even though venture capital investment is covered in nearly all startup funding stories.
In fact, excessive media coverage of seed investment, unicorns, and supergiants has further distorted public perception of startup funding. And while it's certainly exciting and worth writing about, it accounts for less than 1% of total startup investment.
This statistic is critical for any prospective small company owner to know when they are trying to fund their entrepreneurial endeavors.
3.The Average Seed Fundraising Round Was Already Three Years Old
Seed money and startup funding are not always synonymous these days. In reality the average firm obtaining a seed round of venture capital investment had already been operating for three plus years.
Companies who successfully conclude their seed round of investment are already very well established and have a track record of success. A review also suggests that companies can gain access to venture capital using that record.
4. Startups With Two Co-Founders Instead Of One Raise 30% More Cash
According to Inc, firms with two co-founders are more likely to succeed. And that success might present itself in various ways.
This increased success means an average of 30% more money when raising finance for businesses.
Investors prefer co-founders to lone-wolf entrepreneurs and their funding patterns reflect this.
Though some may see two business founders as a formula for power struggles and arguing, it does signify balance and well-roundedness in many ways.
5. 77 Percent Of Small Firms Get Their Startup Capital From Personal Savings
According to Gallup's research, 77% of small enterprises rely on their founders' funds for early financial needs.
More than three-quarters of new firms require financial skin in the game from the founders despite the constant chatter and headlines about startups getting financing from outside sources.
6. A Typical Small Firm Requires Around $10,000 In Launch Financing
Another survey conducted by the Wells Fargo Small Firm Index discovered that the average small business required $10,000 in launch financing.
Compared to the reality that one-third of small firms started with less than $5,000, this data demonstrates how drastically beginning capital requirements and accessibility can vary.
While some small firms can start with less than $5,000 in cash, others require and have access to far more money. Thus, they skew this average upward.
7. A Typical Seed Round Is $2.2 Million
Another fact regarding raising startup financing highlights the significant difference between startup venture capital and regular small company startup funding?
Of course, many businesses go through seed rounds in the hopes of growing much larger than the usual small firm. And to receive much greater amounts of money.
However, comparing these figures illustrates the outlier character of venture capital in the context of startup investment in general.
8. One Percent Of Firms That Obtained Seed Rounds Achieved Unicorn Status, With A Valuation Of $1 Billion Or More
CB Insights evaluated a cohort of 1,119 firms that received seed rounds over 10 years to understand the venture capital funnel better. And discovered that just 12 departed with a $1 billion-plus exit valuation.
That equates to only 1.07% of the seed cohort. However, many departed the funnel via IPO, M&A or self-sufficiency which are excellent for some firms.
Nonetheless many firms mention "unicorn status" of $1 billion-plus exit valuation as a target to strive for.
Raising Capital For Startups: What Can Entrepreneurs Learn From These Stats?
1. The Process Of Raising Startup Finance Is Fast Evolving For The Small Fraction Of Startups That Raise VC Money
The venture capitalist environment has altered dramatically in the last decade. In reality, the average seed round of the cohort studied by CB Insights was $700,000.
A decade later the average round of startup capital is $2.2 million. Raising financing for a business via seed investment will need that your startup stands out and has demonstrated success.
If you intend to raise funds for a new firm through seed investment, make sure you have a good business plan, a detailed predicted startup budget, and an outstanding pitch.
2. A Small Percentage Of All Firms Achieve The Coveted $1B+ Exit Valuation (Probably Around 1% Of 0.05%)
Finally, it's critical to consider how few firms achieve the $1 billion exit valuation milestone. According to Entrepreneur, only 0.05% of businesses receive initial financing through VC investing. Thus, the pool is modest to begin with.
Combine that tiny pool with the CB Insights statistic that just 1% of businesses exit the venture capital funnel with a $1 billion-plus valuation and you have a very small share of startups overall.
Even if your company successfully raises the first round of startup financing through VC funding, the chances of attaining a $1 billion-plus exit remain slim.
3. Personal Savings Are Usually The Initial Step In Acquiring Financing For A Firm
You or your network's initial starting capital will most likely consist of money invested in the firm by you or your network.
Maybe if you want to obtain venture capital and borrow money for your new firm, you'll most likely need a few months or even a few years of experience beforehand.
The average of $10,000 in startup capital that small firms require at the outset must come from someplace. And the figures reveal that the majority 77% turn to their own money.
The Bottom Line
There's a lot to take from this data beyond merely learning that VC companies aren't just pouring money into ideas.
Even though venture capital financing is at an all-time high, VC companies are taking fewer chances on brand new startups. They are paying more money to a smaller percentage of entrepreneurs.
As a result, most new company owners will need to rely on personal savings and network loans to bootstrap their enterprises into visible first success. No matter whether they want to obtain VC funding, borrow business capital or do both.
Raising startup finance will be a lot simpler with this early success to show for. Having actual sales, budgets and customers to backup your creative company concept will allow you to properly pitch to that seed investor. Or apply for that small business loan.