Where Do Entrepreneurs Find Their Money?

In my experience talking to aspiring entrepreneurs on a daily basis, access to start-up capital is one of (if not the) overarching factor preventing them from pursuing their entrepreneurial aspirations.

I recently came across a video thanks to Brad Feld that was created by the Kauffman Foundation and is titled “Where Do Entrepreneurs Get their Money.”  I’ve embedded it below and it provides a great overview of your financing options as an entrepreneur.  The key points are:

1.    More than half of young companies get all their funding from founder savings and cash flow derived from the business.

2.    Credit cards are the second largest source of capital for startups after founder savings. 

3.    Friends and family are the third largest source of capital.

4.    Banks are the fourth largest source of capital.  The difficulty with banks is that they want to lend against secured assets, which most young companies don’t have.

5.    Venture capital is available to high growth companies, but interestingly, less than 20% of the fastest growing companies in the U.S. received venture funding thanks to #’s 1-4.

6.    In the last few years, new sources of capital have arisen such as Angel investors (Tech Coast Angels, AngelList) and peer-to-peer crowdsourced fundraising (Kickstarter, Lending Club, etc).

Here's the video.  Until next time, have a happy holiday season and cheers to a great 2012!