The Definitive Study of Entrepreneurship

London Business School and Babson College just released their Global Entrepreneurship Monitor report, which is "the largest annual measure of entrepreneurial activity worldwide, spanning 34 countries and a total labour force of 784 million people."

Many of the findings are what you might expect, but some of the findings regarding funding were especially interesting, and contain some lessons for entrepreneurs that may surprise you... Self-funding by entrepreneurs and funding from informal investors (family, friends, colleagues, neighbours and strangers) are the lifeblood of an entrepreneurial society. Informal investors are first and foremost close family relatives of the entrepreneurs (49.4%). Friends and neighbours provide 26.4 percent of informal investment, followed by other relatives (9.4%), work colleagues (7.9%), and strangers (6.9%).

Entrepreneurs should look to themselves or seek other entrepreneurs for funding. Aside from providing 65.8 percent of the start-up capital for their own companies they are four times as likely as non-entrepreneurs to be informal investors in another entrepreneur's business. Entrepreneurs are wasting valuable time by prematurely seeking seed capital from business angels and even from formal venture capitalists - searches that come up empty-handed almost every time. (their words not mine)

Entrepreneurs are overly optimistic about their ROIs. 51 percent of informal investors expect a negative or zero return and only 22 percent expect a return of 100 percent or more; in contrast, only 13 percent of entrepreneurs expect a negative or zero return but 53 percent expect a return of 100 percent or more.

By far the rarest source of capital for nascent entrepreneurs is classic venture capital. So rare is it, that even in the US, which has more than two-thirds of the total venture capital in the entire world (74% VC among G7 nations in 2003), far fewer than one in ten thousand new ventures receive their initial financing from VC firms. US companies received $8.1 million VC funding compared to an average of $1.2 million per company in other G7 nations in 2003.

Advantage in the global market place? US companies own it. High-level VC funding accelerates the commercialization of their new products and services; and eventual initial public offerings in the stock markets. Ninety-one percent of VC invested in the US finances high technology companies, in contrast to only 29 percent in other G7 nations.

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