Debt Dominates Entrepreneurial Funding; Venture Capitalists Account for Less than 1 Percent of Financing

Latest Kauffman Policy Digest explores sources of entrepreneurs’ funding and policy recommendations for promising program

(KANSAS CITY, Mo.) June 2, 2015 – An array of federal, state and local policies aim to support entrepreneurs through grants and tax breaks that make capital more easily attainable. 

However, according to the most recent Entrepreneurship Policy Digest released today by the Kauffman Foundation, entrepreneurs most often turn to two forms of private external financing: debt and equity.

The Policy Digest states debt is the most common source of financing for new businesses, with about 40 percent of a business’ initial startup capital coming from bank-financed debt. Equity is a less common form of initial funding, according to the Digest, with less than 3 percent of new firms funded by angel investors and less than 1 percent funded by venture capitalists.

The Digest also highlights new forms of funding, such as crowdfunding. In the first half of 2014, more than 20 percent of new startups went through online lenders when applying for loans. 

The Digest also examines public programs that affect entrepreneurial financing, including:

  • The Jumpstart Our Business Startups (JOBS) Act of 2012
  • Small Business Innovation Research (SBIR) grants
  • State research and development programs
  • Public venture funds

Read the full Digest.

The Kauffman Foundation’s Policy Digests consist of summaries of findings around relevant policy issues that will inform and educate policymakers. To read the entire Policy Digest on entrepreneurial finance and to sign up to receive subsequent Digests, go to www.kauffman.org/policydigest.