written by MO.com Subject Matter Resource Dave Lavinsky
The vast, vast majority of entrepreneurs who seek capital fail. And the reason why is very simple. Yet most entrepreneurs don’t know it.
The reason why most entrepreneurs fail to raise funding is that they go after the wrong funding sources.
The biggest culprit is venture capital, which is the absolutely wrong source of funding for most entrepreneurs. But since venture capital is so intriguing (big stakes, high dollars), it gets tons of press and as such is the first thing most entrepreneurs think about when seeking funding.
Don’t get me wrong. Venture capital is a great source of capital. But only for specific types of firms. Specifically, if you are a technology company, preferably based in California, Texas or the Northeast, have already achieved proof of concept, and can possibly be acquired for over $100 million within the next five years, you are a great fit for venture capital. But, for the 99% of entrepreneurs who don’t fit this mold, venture capital is not the way to go.
Importantly, there are many other sources of funding available to entrepreneurs. And most are much easier to get.
For instance, my research shows that less than 1% of entrepreneurs seeking venture capital raise it. However, according to University of New Hampshire’s Center for Venture Research, 15% of entrepreneurs seeking angel capital successfully raise it. And according to Crowdfunding platform Kickstarter, last year 46% of entrepreneurs seeking Crowdfunding capital successfully raised it. And I would guess that for funding sources like credit cards, the success rate would be greater than 90%.
Here’s the key. When raising funding, you need to understand all the funding sources available to you. And then you need to identify the ones that are most appropriate for your business and easiest to get. You must also understand that funding is a progression. That is, you raise the easier funding sources first, progress your business, and then raise more funding.
As an example, Google’s initial growth was funded by credit cards. Then angel funding. Then bank loans. And then, and only then, was Google able to raise venture capital. That’s right, even the mighty Google couldn’t initially raise venture capital and started with credit cards.
Heed this advice and your success in raising funding for your business will skyrocket.
Want to learn more? Visit http://www.growthink.com/products/truth-about-funding to learn about the Funding Pyramid, which shows you the easier sources of funding to raise and how to work your way up the pyramid to access more and more funding sources.
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