Early Stage Fund Raising is Hard For Everyone, Some More Than Others
Three high level take aways:
- Hard: less than one in ten companies get angel funding.
- Harder: less than one in 200 companies get VC funding.
- Hardest: less than one in 600 female founded companies get VC funding
Note that in each case above (and below) for illustrative purposes the ratios compare a given subset of companies to the total number companies started in the US on average each year.
Working through the numbers:It is easy (all too easy from the investor side of the table) to toss out the glib comment to an entrepreneur: "Well, fund raising is hard for everyone you know" when talking about the time and energy needed to secure early stage capital. And this can then be followed by cliches such as: "You need to kiss a lot of frogs when you fund raise" or "get used to a lot of people telling you your baby is ugly". (Both true but neither very inspiring!)
I thought I should check out the numbers so that, while being pretty prone to these cliches myself, I could at least have some stats on hand. So here goes. I include some additional gender stats to reinforce the point that, while it might indeed be hard for everyone, early stage fund raising is incrementally harder for women entrepreneurs:
1. There are 800,000 "establishment births" each year in the US on average over the last 20 years or so per the Bureau of Labor Statistics. An excellent report by Kauffman and LegalZoom provides a full down load on the demographics of new business founders in 2013 - 35% being women. So women found about 280,000 new companies a year on average
2. In 2013 roughly 70,000 companies receive angel funding of $25bn from 300,000 active angels per the Center for Venture Research (CVR) at the University of New Hampshire. The CVR reports that, on average over time, only 15% of companies looking for angel funding receive it (implying that approx. 470,000 or so do actual try and get angel money). In terms of gender the CVR data shows that women constitute approx. 20% of active angels. On the entrepreneur side, of those seeking funding 23% are women … and of those receiving funding 20% are women. So of the 800,000 new companies in total less than one in 100 get angel funding.
3. US VCs invested in approx. 3,400 new cos in 2013 committing $30bn through 550 active firms according to the National Venture Capital Association. The NVCA reports that 13% of VC deals involve at least at least one female founder, up from 4% a decade ago. On the investor side only 11% of VC investment staff were reported to be women in the most recent NVCA Census survey. And the the Forbes Midas List consistently shows that 5% or less of top VC decision makers are women. (To be exact 4 of 100 in the most recent 2014 survey.) Another perspective: about 35 percent of U.S. businesses are founded by women but just 2 percent of the money invested by venture capital firms goes to women-owned firms, according to a survey by the National Foundation for Women Business Owners and Wells Fargo & Co. Looking at just the number of deals, the NVCA stats suggest about 450 funded companies each year have a female founder ... which is equates to less than one in 600 of the 280,000 companies started by women each year. (Again note that I am comparing these numbers, not suggesting that of 280,000 companies founded in any given year 600 go on to get funded by VCs in that same year!)