Second in a series of posts on the state of entrepreneurship education.
OK, here’s the data from 2011:
- The number of startups in the U.S. was about 800,000.
- The number of angel investment deals was slightly over 66,000, roughly 8.25% of that.
- Approximately 4,000 venture capital deals were done, about one-half of one percent of the total.
Of course, the timing of angel and VC investments aren’t necessarily in the same year as the startup’s founding (especially VC deals). But my point isn’t to be exact from a timing perspective, especially since these numbers fluctuate only slightly year-to-year.
Instead, my objective is to show how few startups raise outside capital. And this isn’t just about one data point. A few years ago, I wrote a post with a different set of numbers but with the same point.
So how are the remaining 90%-plus of startups funded?
I’m confident a significant percentage raise money from family and friends, others get equity-free funding from government grants or winning competitions, a fair number (although probably declining) use credit card debt, and a tiny handful get bank loans.
Of course, the vast majority of that 90%-plus use their own money, whether it’s savings or cashing in other assets such as 401(K) plans, home/auto equity, etc. And because it’s their own money, I can also assure you that they try their hardest at preserving it, using it wisely, and extending it as long as they can.
From my experience, those businesses also engage in other practices that make up for a lack of funding: using their own time and that of family and friends, finding unpaid interns, bartering, using open source and free technology solutions, etc.
Study any entrepreneurship program at a major university, especially those that are ranked by either U.S. News & World Report or Entrepreneur Magazine and the Princeton Review. What you’ll find in their curricula are numerous courses on entrepreneurial finance and venture capital, both of which I believe are important and necessary in a top-flight program.
The problem is that few cover the other sources of financing, especially the two that are most common: family/friends and self-funding, also known as good old fashioned bootstrapping.
If those are the financing methods most often used by – and most often the only option for – young entrepreneurs, why aren’t they being taught? I don’t mean as topics in a class on entrepreneurial finance, or as a topic by a guest speaker who built a company on bootstrapping.
I mean as the basis for an entire course or, better yet, an entire program. Rather than having class sessions or whole courses on angel capital, venture capital, entrepreneurial finance, term sheets, valuations, etc. with just token mentions of bootstrapping and family/friend capital, shouldn’t it be the opposite?
Shouldn’t our programs reflect what actually happens in “real life”? What the numbers tell us?