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!

Kickstarter - Sponsorships & Moore

After a weeks-long hiatus on everything except work and school, I thought it appropriate to re-energize this blog with some thoughts on Kickstarter.

According to their website: “Kickstarter is the largest funding platform for creative projects in the world.  Every month, tens of thousands of amazing people pledge millions of dollars to projects from the worlds of music, film, art, technology, design, food, publishing and other creative fields.”

According to a recent TechCrunch headline, it’s working – “Kickstarter, Two Years and 20,000 Projects Later: $53 Million Pledged, $40 Million Collected.”

I’ve received funding requests from friends/colleagues for projects that fit within this description, but what really got my attention about this company was a recent Fred Wilson blog post. 

Wilson told the story of how a professional golfer named Mike D is using Kickstarter to fund his journey on the mini-tours and create a documentary about it.  Wilson summed it up best by saying: “Mike is taking the classic big brand sponsorship model and crowdsourcing it with Kickstarter.  Awesome.”  He has raised over $13,000 thus far, which is almost double his minimum goal.

I think this is a great example of: 1) a golfer applying innovative thinking to the pursuit of his dreams; 2) a product being applied in a way that the company had no clue it could/would be used.  Great lessons for both golfers and entrepreneurs.

This story reminded me of Ryan Moore, the young PGA Tour player and 2004 U.S. Amateur Champ.  Moore parted with his club sponsors in 2008 and then signed a deal with a start-up equipment company called Scratch Golf in 2009.  The deal – Moore would play Scratch Golf’s irons/wedges in exchange for becoming a part-owner of the company.  Compensation was not cash, but equity.  Again, genius. 

The arrangement ultimately fell apart last year with Moore signing a deal with Adams Golf and losing his equity in Scratch, but I believe (and hope) he was a pioneer for more golfers to think in a similar way.  Certainly it’s a great opportunity for players to build equity in something other than their golf game.  It also injects an innovative spirit into the golf industry and provides a path for start-ups to penetrate and pivot around the “good ole boys network.”

I think these two innovative approaches to sponsorships are steps in the right direction and will hopefully pave more paths for golf entrepreneurs.