The Average U.S. Startup Launches with $17,500 in Funding [REPORT]
July 22, 2016
Options for funding entrepreneurial ventures are increasing in the U.S., particularly with the growth of crowdfunding and the prevalence of informal investors, but entrepreneurs still depend on bootstrapping and support from family and friends to finance startups—this according to the Global Entrepreneurship Monitor (GEM) 2015 U.S. Report issued by Babson College and Baruch College.
In 2015, entrepreneurs needed a median level of $17,500 to start their businesses, and financed 57 percent of funding needs themselves.
Women reported needing half as much funding to start companies as men—10,000 and $20,000 respectively—suggesting that women felt they could accomplish what they needed with fewer resources, or that they simply have fewer resources to apply to their businesses.
“Globalization, changes in technology, and social awareness have provided an impetus to develop capital flows from diverse sources,” said Babson College Professor of Entrepreneurship Donna Kelley, the GEM Report’s lead author. “Startup activity benefits from widespread recognition of the role entrepreneurship plays in increasing employment and improving the economic health of the nation.”
Beyond personal sources, the most popular funding source for entrepreneurs came from banks, at 36 percent. “This is contrary to the common belief that banks are not the best source of finance for startups,” added Kelley, “This finding reveals the key role banks play in fostering entrepreneurship in their local economy.”
The government also played an important role in business starts. In addition to financing 22 percent of all entrepreneurs, government programs were the most powerful source of funding for social entrepreneurs, revealing the importance of government policy in helping entrepreneurs create lasting economic and social value.
Crowdfunding, a still-emerging source, contributed to the financial needs of 12 percent of entrepreneurs.
Six percent of the total U.S. population acted as an informal investor in an entrepreneurial venture.
- Summarizing the results from above, all entrepreneurs, on average, drew funding from:
- Banks (36 percent);
- Family (24 percent);
- Private equity or venture capital (24 percent);
- Government (22 percent);
- Employers or work colleagues (16 percent);
- Friends (15 percent), and
- Crowdfunding platforms (12 percent)
Key Highlights
Total entrepreneurial activity (TEA) in the United States declined by two percentage points to 12% in 2015, reversing a four-year trend of increasing TEA rates. This decline was entirely due to a drop in nascent activity, meaning that fewer people were entering entrepreneurship in 2015.
- With regard to ethnicity, African-Americans start businesses at higher rates than Caucasians (14% vs. 12%), but their established business ownership levels are little more than half that of Caucasians (4.5% vs. 8.7%). This raises questions about why so many African-Americans start businesses, while comparatively few have transitioned to the mature phase.
- Age patterns in TEA rates by gender show low rates (7% to 9%) among younger women (18 to 34 years) and older women (45 to 64 years), with a spike upward to 15% in the middle (35 to 44 years) age group. Men maintain high rates throughout their working ages, declining substantially only after age 55.
- Sixty-nine percent of entrepreneurs in the United States stated they were motivated to start by the pursuit of opportunity and they desired to increase their income or the level of independence in their work.
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