Startup capital – Where does it come from?
Above is a great video from the Kaufman Foundation that talks about where young companies find the money they need to fund their young organization. Overall, I think they did a great job out outlining the current sources of capital.
I personally feel that the “Angel” category should be broken out and get its own designation. All too often, Angels get lumped in with the VC capital and they really are quite a different beast. For a young company, Angels can be a great source (often the only source) of necessary capital when you are really too early for the VC world. We see the VC world as the best option when you are ready to scale (and scale rapidly). Until then, it’s probably best to look elsewhere.
In fact, I was pleased to see that the Kaufman research supports our own findings that the majority of organizations get up and running without any outside investment. Bootstrapping, while painful, is a great way to start a business and imposes some needed restrictions on spending. If you are running lean to begin with, it’s hard to be excessive. We’ve seen far too many companies that come to us looking for guidance after blowing through their initial seed capital (angel or VC) with a burn rate that was totally unnecessary. They got generous valuations, but it left them with an abundance of capital that they spent all too freely. Starting lean will help you stay lean and that will lead to sustainable profitability much faster.