Friday Financing Tip #1: More Ways to Get Funded Than Most Entrepreneurs Know

Friday February 17, 2006

For all the attention it gets from both media and entrepreneurs, you'd think that venture capital was the dominant form of financing for entrepreneurial ventures. But in fact, nothing could be farther from the truth. According to the Global Entrepreneurship Report, less than 1/10th of one percent of entrepreneurs start their businesses with funding from formal investors, i.e., angel investors and venture capitalists. An overwhelming 88 percent of America's 500 fastest growing private companies never received financing from business angels at any point.

So who is financing these ventures? Close family relatives (49.4% of informal investment), ,friends and neighbors (26.4%), other relatives (9.4%), work colleagues (7.9%), and strangers (6.9%) -- yet more evidence why networking is so important for entrepreneurs. Also, people who are entrepreneurs themselves are four times more likely to invest in another's business.

The third alternative, in addition to self-funding and investors, is to borrow the money. Of course, the first place most people look is to a bank. Most national governments have some sort of small business lending program which offers some guarantees to the banks and makes it easier for them to lend money to small businesses. However, because of bad credit or other issues, many entrepreneurs get turned down by the bank. That's not the end of the road, though. Private lenders offer an alternative when the bank says "no".

So don't give up on your idea just because you haven't found funding yet. If it's really that good an idea, someone will put up the money -- you may just have to look a little harder for it and explore some ideas beyond the obvious.