12/12/11

You are hosed. But do it anyway!

I recently sat down with a good friend to go through some stats which show the harsh, ugly truth of Angel/Seed/VC funding. It essentially goes like this:

In the first half of 2011 there were about 175,000 startups looking for early stage investments in the US (note that this number is not limited to tech). Out of those, a mere 26,300 received angel and/or seed funding - that's only 1 in 6.5 (or a 15% yield). Kinda scary if you're in the position of looking for money. But it gets even scarier - out of the 26,300 startups which received angel and/or seed funding only 7% (a total of 1,850) received series A funding (aka institutional funding from a VC firm). Putting this together - your chance to receive institutional capital is pretty much exactly 1%.

Now - what that tells us is: Your chances to receive funding are slim. You could assume that you're hosed. But fret not - first of all: There are 1,850 startups which get funding all the way to series A (and are thus well on their way to be successful - at least the odds are stacking up). And probably more importantly - focus on building a product people want to buy - that way you don't need funding. Or can take funding for accelerating your growth instead of building your product. Which is the best way to do the VC dance anyway - as your leverage is much, much better.

So my friend - fret not! Go, build an amazing product which people love and are happy to pay for. And you will be fine! :)

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