How are entrepreneurs funding their businesses?

According to new research from the Global Entrepreneurship Monitor, 95 per cent of entrepreneurs worldwide funded their own start-up ventures.

The report looked at entrepreneurial finance patterns around the world and is the first of its kind in 10 years. Since then, availability of funds, sources of funding and the cost of starting a business have all evolved.

“Although the average cost of starting a business has dropped, access to finances is one of the most serious problems for businesses in many economies with small and medium-sized businesses struggling the most,” Caroline Daniels, Babson College senior lecturer and one of the reports authors, said.

The average amount needed to start a business in 2004 was $54,000 and $65,000 in 2006, but by 2015 the median amount needed had fallen to just $13,000.

The report suggests that this drop indicates “a willingness among current entrepreneurs to start a business with fewer resources and the capability to do so”, which they suggest has to do with the influence of the internet.

The report also found that (possibly due to the reduced costs involved) entrepreneurs are increasing the proportion they invest on average – in 2014 they provided 66 per cent of their capital, but in 2015 that had increased to 72 per cent.

Savings and informal investments from neighbours, family and friends played an important role for many entrepreneurs – but receiving funding from strangers was rarer. “Beginning life in a privileged position, therefore, still gives entrepreneurs a jump-start, particularly in Africa and North America, where rates of informal investment are highest,” Penny Key, another one of the report’s authors, says.

This kind of informal investment has had a huge impact on entrepreneurship. Since 2012, an average of six per cent of the global adult population has provided informal investment to an entrepreneur per year – totalling more than $1 trillion between 2012 and 2015.

The report also found that women stated that they needed fewer funds to start a business in almost all economies – particularly in Canada where female entrepreneurs say that they require 8.5 times less than their male counterparts.

However, despite women entrepreneurs saying that they need less money, other studies have found that women are still struggling more than men to get funding for their businesses. A report from Carleton University suggests that the perception women are hindered by the perception that they are less willing to take risks than men. 

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