Dorsey and Whitney: Sources of Capital for Entrepreneurs

November 10 2010 No Commented

I chuckle when I read Silicon Valley pundits attempt to generalize on the characteristics of US entrepreneurs and their source of capital based of information gleaned from surveys of Silicon Valley folks.  Such is the case with the Dorsey and Whitney (D&W) survey, “What Really Matters to Startup Entrepreneurs” released last month.

Let’s just look a bit of the data:

  1. Eighty percent of the D&W survey were from the US and over 40% (> one-half of those  surveyed in the US) were from Silicon Valley.  Yet only a tiny fraction of US entrepreneurs successfully raising money from Friends and Family or Angels are, in fact, actually located in Silicon Valley.  Could this imply poor sampling?
  2. According to the GEM reports, US startup entrepreneurs raise about three times as much capital from Friends and Family ($50 billion/yr) as they do from either Angels ($20 billion) or VCs ($20 billion).   Yet only about 30% of D&W surveyed entrepreneurs had raise recent capital (averaging $500K or less) from Friends and Family.  Could this imply poor sampling?
  3. Let’s look deeper at this same data:  GEM and Kauffman have estimated that 200,000 or more entrepreneurs in the US received funding annually from Friends and Family.  The Center for Venture Research estimates that about 15-20,000 entrepreneurs are successful in raising seed/startup capital each year from Angels.  But, according to NVCA, over the past few years, less than 200 entrepreneurs have annually received seed/startup funding (<$500,000).  Yet only about 30% of surveyed entrepreneurs had raise recent capital (averaging $500K or less) from Friends and Family.  Could this imply poor sampling?

 

Silicon Valley is and has been an important Mecca for entrepreneurs, especially for those few who annually raise venture capital.  But, there are only two places in the world for entrepreneurs: (1) Silicon Valley and (2) everywhere else.  This Dorsey and Whitney survey is surely relevant to Silicon Valley but does not appear to me to represent trends elsewhere in the world (including the rest of the US).

It’s a GREAT time to be an angel.  Find a group and jump in!