How many companies chasing outside capital actually raise any?
To me this is one of the most fascinating questions you can ask about startup financing. The figure I have been hearing regularly over the past 25 years is that venture capitalists invest in about one in ever 500 companies that approach them for funding. It should be added that venture capitalists rarely invest in startups. They prefer later stage companies which have proven themselves in the market place.
The success rate for startups chasing angel investors is even more difficult to dig up. My best estimate is that with credible ventures the odds could be as good as one in 200 to as low as one in 400. I admit that I’m pulling numbers out of the air here but this estimate is also based on 25 years of experience with startups.
So what’s the funny, I hear you asking impatiently.
Well, if you were to bring 500 startup founders together in a large room and survey them, every last one would be convinced that he was going to be that lucky one in 500 who gets the financial backing from angel investors or venture capitalists. It will be rare to find anyone in such a gathering who accepts the fact that the odds are against him.
Why do I bring this point up?
Well, it’s my way of saying that this site and blog are aimed at the 499 who will have to find a way to launch without any outside money. This is not to say that they will never raise any money. They may well do so later on but just not at the beginning. They will instead have to prove themselves first by passing the standard entrepreneurial tests before investors will start taking them seriously. The most important of these tests is to be able to work with what you have and use it to create cash flow. Positive cash flow.
How this can be done is an endlessly fascinating topic.
Where there’s a will there’s a way.
The take away in this is that good entrepreneurs always have a Plan B in the event that outside investors are not found.