Some good news on the high growth venture financing front -- VC money is spreading out across the country.
From the New York Times (thanks to Ben Cunningham for passing this along):
Venture capital is on the move -- to New Mexico, Pittsburgh and points beyond.A new survey shows that venture capital investment -- the stuff that fuels technology innovation -- is growing in parts of the country where it has been largely unapparent. The survey from the National Venture Capital Association, based on data provided by Thomson Financial, found that while Silicon Valley remains the hotbed of seed capital, other regions are seeing it grow more quickly.
Cities and states are pushing hard to get venture capital and angel money flowing into their economies. I am part of a planning group that is seeking to attract more high growth money to Nashville.
However, attracting venture capital is not the holy grail of entrepreneurial economic development that many people seem to assume. A few points to remember:
- Venture capital money funds only a tiny fraction of new business ventures. Most of the fuel of the entrepreneurial economy comes from small businesses that will never need nor attract venture capital. While high growth businesses are important, they are marginal players in economic growth.
- About 80-85% of start-up capital for new businesses comes from the entrepreneur and her friends and family. Most of the rest usually comes from loans.
- A typical venture capital firm receives hundreds of plans each year, considers only a handful, and usually funds only 3-5 deals a year.
- Most venture capital goes to businesses that promise very high growth, with the promise of high returns (70-100% annual return on their investment). They are looking for home-run deals.
- They tend to favor funding deals that are run by people they know from previous deals.
- Venture capital firms most often are looking for deals that need at least a $5 million investment, and most now look for $20 million deals or even larger.
