Prevalence Rate of Informal Investors, Adults 18-99 years old
Amount of Informal Investment as a Percent of GDP
R 2 is the proportion of the variation that is explained by the trend line. An R 2 of.7785 indicates that 77.85% of the variation in annual amount per informal investor is explained by GDP per capita.
Self-Funding by Entrepreneurs Entrepreneurs themselves provide 65.8% of the capital for their new ventures. Total capital needed to start a new venture is $53,673. Entrepreneurs provide $35,317. External informal investors provide $18,356.
Classic Venture Capital Invested in High-Technology Sectors
81% 83% 73% Classic Venture Capital Invested in High-Technology Sectors 19% 17% 27%
67% 33% Number of High-Technology Companies Receiving All Stages of Venture Capital in G7 Nations
Trend in Domestic Investment of Classic Venture Capital 1999-2003 USA 82% USA 83% USA 77% USA 70% Venture Capital Investment (1,000) USA 66%
Trend in Domestic Investment of Classic Venture Capital 1999-2003 in G7 Nations USA 85% USA 86% USA 82% USA 75% Venture Capital Investment ($1,000) USA 74%
Implications & Recommendations Self-financing and informal investment are far and away the most important sources of startup financing. If self-financing and informal investment dried up, entrepreneurship would wither and die. On the other hand, if classic venture capital dried up, entrepreneurship in general would continue to flourish. Classic venture capital is primarily an accelerant in the commercialization of new products and services. It seldom funds revolutionary research.
Get your initial financing from yourselves, family, friends, work colleagues, and strangers (4Fs). Don’t even think about classic venture capital at the seed-stage. The odds on raising venture capital for a seed-stage company are worse than the odds on becoming a professional athlete! Entrepreneurs:
Policy Makers: Give entrepreneurs and informal investors a tax break and other incentives. Let classic venture capital take care of itself. Just treat classic venture capital as an asset class from the point of view of investors and pension funds.
Educators & Trainers: Pay much, much more attention to self-funding and informal investment as sources of startup capital. Pay much less attention to classic venture capital as a source of startup capital. Put much less emphasis on business plans and business plan competitions that target venture capital.
Researchers Conduct far fewer studies of classic venture capital and public stock markets as sources of financing for entrepreneurs. Conduct far more studies of funding by informal investors and self-funding by entrepreneurs themselves.
Founding and Supporting Institutions Babson College and London Business School www.gemconsortium.org www.gemconsortium.org firstname.lastname@example.org