Thoughts on startups by investors that
fund them & entrepreneurs that run them

How many start-ups in the US get seed/VC funding per year?

In very general terms, roughly 1,500 startups get funded by venture capitalists in the US, and 50,000 by angel investors. VCs look at around 400 companies for every one in which they invest; angels look at 40.

There are several million “startups” that are formed each year, so one way of looking at it is that there are several million “great people with a good idea who give up because they just cannot get initial funding”.

On the other hand, those VCs and angel investors spend all their time proactively seeking the best companies they can find, and despite their concerted efforts at picking the best of the best, fully half of the ones they do fund will go out of business with a couple of years. Looked at that way, of the 50,000-60,000 deals that get funded each year 30,000 of them should not have been funded (let alone the other few million who wanted funding)… therefore there are no really great people with really great ideas who go unfunded.

Of course, the reality lies somewhere between those two extremes, but my personal guess, as someone who is familiar with the issue from both sides of the table, is that “lack of available funding for truly deserving deals” is not one of the biggest challenges facing entrepreneurship in the US.

*original post can be found on Quora @ : http://www.quora.com/David-S-Rose/answers *

Written by David S. Rose

user David S. Rose Founder and CEO,
Gust

David has been described as "the Father of Angel Investing in New York" by Crain's New York Business, & a "world conquering entrepreneur" by BusinessWeek. He is a serial entrepreneur & Inc 500 CEO who chairs New York Angels, one of the most active angel investment groups. David is also CEO of Gust.

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Comments

4 thoughts on “How many start-ups in the US get seed/VC funding per year?”

  1. Marie-Pierre SCHMITZ says:

    Good evening Sir, So, which is the biggest challenge ? Thank You

  2. Sergei Yatsenko says:

    Good day, David S. Rose. My name is Sergey Yatsenko. I am the private inventor / Ph.D /, and I have know – how Nanotechnologies for Development / This is Jump /. These Nanotechnologies gives new opportunity SME’s in the World. These Nanotechnologies / home appliance, polymers, real estate and design / Green Techniology/ tested with good results and profit. /On LinkedIn – Sergey Yatsenko, IndepNanoProf/. Nanotechnologies for Development are real objects for the investment / Venture Capital or Angel Investore/. I found Nanotechnologies for Development and I know how they are working. Best Regards, Sergey.

  3. Scott Rogers says:

    Sad statistics here! To many companies fail that shouldn’t, simply because they lack the capital or cash to expand. Not having the connections or resources to tap into hurts so many businesses that shouldnt fail. Our company has been faced with similar situations. We grew from 140k revenue to 2.5 million in less than 9 months and the cash constraints on a business with that type of growth is tremendous. Sad to see so many great ideas flop for these various reasons.

  4. Kevin Frei says:

    David, thank you for these statistics. You note that you are familiar with both sides of the table, but I wonder if you are familiar with *all* sides of the table.

    The assumption is that “truly deserving deals” all fit the profile that appeals to professional investor groups. Equity financing is the right way to start a business – just about any kind of business. Angels and VCs are in the business of picking rocket ships, so they fund relatively high-risk ventures with high expected returns. But there are other kinds of investors. Family, friends, and colleagues invest in all sorts of businesses based on their estimation of the risks and rewards, often with special knowledge of the entrepreneur or the industry. Many ventures are seeking capital amounts well below the threshold that most Angel groups will consider. Some ventures (like a restaurant, a bowling alley, etc) can present localized benefits to the investors.

    I think Angels and VCs invest in exactly the kinds of ventures they should. But I also think there are lots of ventures that will not attract that kind of capital but which nonetheless offer a good value proposition to investors. It’s worth asking: how do those ventures get funding? There aren’t nearly enough government grants to go around, and they tend to come with restrictions. In my experience, a first-time entrepreneur without substantial collateral is not going to be able to get much business credit (nor should they be bearing all that risk by themselves). So where do they get capital? They get it from friends, family, and colleagues.

    The problem is that there are plenty of entrepreneurs with worthy ideas who are not blessed with rich family or friends. This would be only a minor problem if entrepreneurs were allowed to pursue investors in the great marketplace of people who want to put their money to work. As surely as there are entrepreneurs with good value propositions, there are individuals with surplus money who would like to participate. Sometimes those individuals will have other incentives for investing, such as localized or domain-specific perks. But our two-tiered securities regulation regime – one tier for companies with the resources to go public, and another tier structured on exemptions for accredited investors – offers no accommodation to the small business owner and would-be investor who might otherwise pool their resources in a mutually beneficial enterprise.

    There are other sides of the table that are disenfranchised not due to any natural distributional law of economics, but because of perverse regulations. The SEC is strongly indicating that they plan to undermine the new Rule 506 changes regarding general solicitation, but if they don’t, the SEC will be in for a big surprise. Because when private securities are advertised and people become aware that these markets are restricted to accredited investors, people will revolt at the unfairness of it.