Gone are the days when people would just not start a new business due to the lack of funds and investment. Now inspiring entrepreneurs can get funds for their projects quite easily from multiple sources and this summary of the webinar By David Drake is precisely about how people around the globe are investing in startups. David Drake is a Crowd Funding and Job Act advocate and the founder and Chairman of Soho Loft, a financial media company.
Most Important Sources of Investment in Startups:
Approximately, 565,000 startups are launched in United States each month. Each of these startups raise $78,406 on average that becomes combine annual income of $531 billion. All these startups find funding from different sources or manage to convince larger organization or donor agencies to investment in their business.
Some of the most common sources of funding are personal savings and credit that accounts for $185.5 billion of total investment in startups, , money received from friends and family is equal to $60 of total investment, $22 billion come from ventured capital and Angel investors contribute some $20 billion. Finally, sources like loans from banks and crowd funding are responsible for providing $14 billion and $1.5 billion to the startups respectively.
From the above discussion, we can clearly see that most of the startups are funded largely in part by the personal savings and credits of the entrepreneur. As a matter of fact, the personal savings and credits fund as many as 57% of startups that are launched across the United States of America where $48,000 average amount is invested in each startup in this regard. Similarly, only 38% and 1.43% of the startups and small business are currently being funded by the investment by friends and family and loans obtained from banks respectively.
The Crowd Investors:
However, the trend is changing and more and more Crowd Investors are willing to invest in small businesses not only in United States but across the globe. Crowd Funding is not a new concept but it has garnered real popularity in the recent years due to many reasons. The rise of the Global Funders is really an encouraging sign for anyone with the lofty intentions to start his business on solid grounds but has not capital to go about his mission.
In fact, the crowd funding is the fastest growing investment source that totaled approximately $5.1 billion in 2013 and is expected to exponentially increase in coming years. Already, there are 1 million successful campaigns to date that benefited from this particular source of funding.
The Crowd sourcing:
Crowd sourcing is the practice of obtaining needed content, services or ideas from a large group of people, both paid and unpaid typically from an online source instead of from traditional sources or employees. The process is often used to subdivide tedious task to charities or fund-raise startups. The process involves a lot of people where everyone contributes according to his skills or experience towards a greater task. There are five pillars of crowd sourcing such as Cloud Labor, Distributed Knowledge, Crowdfunding, Open Innovation and Crowd Creativity.
Here, we are concerned only about the Crowdfunding because the webinar under discussion only deals with various methods of obtaining funds for your startup and Crowdfunding is one of them. It is also an easy way of acquiring some money that is you only need to find a reliable Crowdfunding platform in the likes of kickstarter.com, set the amount and deadline and ask people to donate money for your project. Crowdfunding is further divided into four types such as Donation based Crowdfunding, Equity based Crowdfunding, Loan based Crowdfunding and Reward based Crowdfunding.
Some of the most famous projects launched through Crowdfunding are Star Citizen, Tesla Museum, Ouya Gaming Console, Pebble e-Paper Watch and many more.
The Angel Investors:
The simplest definition of the Angel Investor is “ the investor who provides financial backing for small entrepreneurship or businesses.” Angels investors are normally found within the family of the entrepreneur or friends but anyone can become an Angel investor for your startup. They can provide you an ongoing financial support or one time seed money to launch your business or carry the company through difficult times.
The greatest advantage of Angel Investors is that they invest in person not in his business and therefore, offer lenient terms of conditions as compared to other money lenders. They are essentially exact opposite of Venture Investors as they do not seek huge profits but only want your business to succeed. In fact, these investors write 16 times more checks than Venture Capitalists and invest an average amount of $74, 995. There are 268,160 Angel investors in united states right now and they fund as many as 61,900 startups each year that is 0.91% of total startups.
Venture Capital Firms:
Venture Capitalists are those investors who provide money to small businesses and startups with perceived long term growth potential. If you do not have access to capital market, this could become one of the most important types of funding for your startup firm. It has the potential for above average returns for the investors but it entails more risks than benefits for them. More venture capitals come from investment banks, other important financial institutions and group of wealthy men and this type of funding is getting popular among people looking to launch their small business.
Currently, only 0.5% of startups are being funded by Venture Capital firms but the number is definitely on the rise. Most importantly, these investors write the biggest checks when it comes to supporting small businesses where the average invested amount is $5.94 million. Total number of venture investors in United States is 462 and they fund 3,700 startups each year.
Finally, we can say that it is very easy for current small business owners to find some funding for their business to grow than it was just a decade ago. An increasing number of people and firms are willing to invest in your startup. However, it is up to you to find, meet and engage such people and learn about new ways of financing available for new setups and set on the journey to success.