Why Crowdfunding Is The Next Big Thing: Let’s Talk Numbers

Stephen Hawking once said: “I don’t think the human race will survive the next thousand years, unless we spread into space.” Bold statement. But as I’ve been working on organizing the upcoming Next Generation and Global CrowdFunding Forum which is set to be on November 16th here in Los Angeles, I’ve been asking myself the similarly dramatic question: can we, as entrepreneurs in desperate need of capital, survive the next ten years unless we spread into crowds?

A Global Entrepreneurship Monitor (GEM) study revealed that out of the $51 billion invested in start-ups by individuals in 2010, only $9.4 billion was committed by angel investors (formal investors) while the bulk of capital, $41.6 billion (81%), came from friends and family. What about VCs? Let’s look at the data from the National Venture Capital Association (NVCA): in 2010, venture capitalists invested approximately $22 billion into about 2,750 companies, 36% of which received funding for the first time. Now let’s compare the numbers: in 2010 we had $41.6 billion coming from friends and family, aka “informal” investors, fearlessly backing up start-ups and only $22 billion from the VCs committing to both: start-ups and established business. Are you thinking what I’m thinking?

More recent data from GEM confirms that in 2011, 4.8% of the U.S. population personally provided funds for new businesses while only 1% of the population was represented by formal or accredited investors (must have an annual income of at least $200K or over $1 million in liquid net worth) along with venture capitalists. Alas, the last were not much of a help to the majority of entrepreneurs – 95% of business plans received by the accredited investors and VCs were rejected.

Read more at Huffington Post

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