The Funding Gap

November 16 2010 No Commented

Everyone who understands the capital food chain for entrepreneurs is aware of the huge capital gap that has appeared in the past decade.  Very little capital is available in the US for rounds of $1 million to $5 million.  Angel investors have for decades funded deals of $200K to $1 million.  Until the late ‘90s, VCs funded round of funding from $2 million and up.  But, for a variety of reasons, the minimum rounds size for most traditional VCs is now about $5 million.  The gap is well-know and quite troubling.

I’ve been studying the funding gap for most of the past decade, since it appeared during the Internet boom.  From the best I can ascertain, there are currently less than 100 US startup investors (of all types) funding round sizes between $1 and $5 million annually.

What was alarming to me when I read the Dorsey and Whitney (D&W) survey, “What Really Matters to Startup Entrepreneurs” released last month is the following data point:  Nearly one-quarter of the 363 entrepreneurs surveyed state that they will be attempting to raise $1 to $5 million in rounds of investment in the coming 12 months.   But, there aren’t any investors funding deals this size.  What are they smoking?