My first company started with a pot of £6,000 from my savings and £6,000 from my Father. I was in the 47% that get funding from Friends and Family so where does all the rest come from?
I started my first business in 1996 with just £12,000.
My Father got his 50% back a year later as a dividend and still owned the shares. He remarked that it was the best investment he’d ever made. My Father was not a business man but he was interested in me and my career. When I first promoted the idea he was the toughest questioner I had and I know he invested because he believed in me rather than the idea. Just as well because a year later I was running a completely different business than the one in the business plan!
I thought this story was unusual… but, as you can see from the pie chart above, 47% of companies received their investment from close family members. This chart comes from data contained in Reynolds 2004 “Entrepreneurship in the United States Assessment”, Florida International University which was reprinted in Scott Shane’s excellent book “Fool’s Gold”. The report provides an estimate for the total capital market of $150 billion annually in 2004.
From this we can conclude that in the USA in 2004, just $12 billion (8%) of funds that were invested were by Business Angels. While these numbers seem old, there is little reason to belive that the essential messages could have changed:
- If you are a company… spend 92% of your time seeking investment from friends and family rather than Business Angels. Don’t think about your friends as sources of investment – it is the people that they know that are important.
- If you are a Business Angel… increase the number of your friends (increasing family is a longer term strategy!) since you are more likely to find investment opportunity through that route than being a formal “Business Angel”.
One of the reasons I started Meteorical was to help people understand how to be more successful more quickly and efficiently. Please share your stories that support or counter these conclusions so others can benefit.