Part of the mythology of entrepreneurship is that VC’s play a major role in new venture development in this country. The myth has evry entrepreneur thinking there is a VC out there for them. I have met small retail start-ups that actually think they can get VC funding. (In case you still believe this myth yourself, there has never been a small retail business funding by VC money–ever!!). While VC’s play an important role, I would even go so far as to say a critical role, they are a niche player. They only work with businesses that have large capital needs and show great promise of very rapid growth.
Anita Campbell has a fascinating post over at Small Business Trends that really brings this to life. She cites a report stating that in 2002 only 38 out of 100,000 new businesses had VC money behind them. That is .038%! She also links to an article on VC’s over at Forbes.com that is worth a read.
What was most heartening was that she stated that entrepreneurs seem to be understanding that VC’s are not part of the real world for most start-ups. Maybe the VC myth is finally becoming debunked! Over 80% of funding comes from the entrepreneurs themselves and their friends and family. Most of the rest comes from a variety of sources such as leasing companies, limited bank financing, etc. If I were to draw a pie diagram of this, VC’s would be a really thin line at best. They are important, but not for the vast majority of entrepreneurs. I wish my fellow teachers of entrepreneurship would give up this myth and teach about what really funds most business start-ups. The VC process is complex and sexy so it makes great stuff for college classrooms. But, we need to get real and teach entrepreneurs about what is fact, not myth.
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