Startup Funding: Traditional Venture Funding

CJ Cornell

Traditional Funding

Recently, the Ewing Marion Kauffman Foundation (the world’s foremost organization focusing on entrepreneurship and education), posted some data on the most common sources of funding for new companies:[1]

Common Funding Sources for New Companies Table
Source Amount Share
Banks and Other Loans 38,059 34.09%
Personal Savings 32,658 30.00%
Friends and Family 6,910 6.30%
Credit Cards 6,756 6.20%
Angel Investors 6,350 5.80%
Venture Capital 4,804 4.40%
Government Related 2,129 2.00%
Other 11,350 10.40%
TOTAL 109,016 100.00%

But this data needs some interpretation: It appears that Angel and VC funding (the kinds most commonly associated with new ventures) barely total 10 percent of all startup funding.

This can be misleading. First: “new company” is not the same thing as a “startup” in the entrepreneurial sense of the word. The vast majority falling under the broad definition of “new company” are really small businesses—those that are not developing a new product or service, nor addressing new markets. Thus, the level of risk and investment needed is much lower than typical high-technology ventures.

In addition, the chart does not differentiate between the stage of company seeking funding. In other words, a startup’s founder might use personal savings, credit cards, and loans from family to get started—but once the startup becomes a company with a more definable product and market, it’s time for other forms of funding.

Venture Funding

In the context of startup ventures and entrepreneurship, funding equals external resources (usually money), plus some support. External means the resources are being controlled by individuals, groups, companies or organizations that are not officially connected to the startup venture. Resources means cash/money (usually), but in many cases resources are other instruments of value for the new company: a line of credit, office space, retail or manufacturing space, equipment, supplies, or access to distribution channels.

And since the funding source has a vested interest in seeing the new startup succeed, the funding often comes with support—in the form of advisors, board members, connection to key customers or markets, etc.

Attracting and Securing Funding

This is the big question on the minds of most new entrepreneurs. In the beginning, most aren’t too discerning. The type of funding needs to match the type of startup company, and its situation. For instance, if a startup company feels they can guarantee payback of a $500,000 loan within two years with 20 percent interest—but they approach venture capital firms—it will be a futile quest. Regardless of if it’s a good deal, financially, venture capitalists, as a general rule, just don’t loan money to startups.
Money is money, right? And this is the moment when entrepreneurs begin to waste a lot of time and effort chasing the wrong kinds of funding.

So, in the following sections, we’ll explore the different funding types typically available to entrepreneurs, and to the companies they create. We’ll dive in a little as to “who” the funding sources are (who controls the money), what interests them, what motivates them, and where you can find them—so you can understand which sources are appropriate for your company, how to prepare, attract, and secure the funding.

If you are a student entrepreneur, or someone with just a raw idea (and not a company), then many of the funding sources described will not apply—at least not yet. But entrepreneurs who understand the language of funding and the broader landscape will have a distinct advantage over those who only focus on their short-term needs.

[Ed. Note: Use the slider to navigate the chart below in the web book.]

Traditional Funding Sources for Early Stage Ventures[2]

Traditional Funding Sources for Early Stage Ventures Table
Self—funding /

Friends and Family

Angel Investors / Angel Groups Super Angels Venture Capital


Usually has no added value to the venture other than cash Accredited investors investing as individuals or in groups Accredited individual investors who have significant investing experience and take active roles Institutional funding (managed by professional investors)
Typical Range Less than $20,000 $150,000-

$1.5 Million


$1.5 Million

$5 Million-

$50 Million

Annual $$ Invested


$50 Billion $20 Billion $0.2 Billion $20 Billion
Stage Idea, seed, pre-seed Seed, Series A.

Mostly for startups and growth stages

Seed, Series A.

Startup and growth stages

Startup, mostly for growth and later stages
Obstacles and Issues


Younger entrepreneurs lack sufficient self-funding or resources from friends. Requires evidence of market validation and traction; often requires “aggregating” small investments from many angels Requires evidence of market validation and traction.

Super Angels are rare, but they can add significant value to a startup beyond money (connections, introductions, and significant help securing additional funding).

Fund companies, not ideas. Requires significant commitment (an issue for student entrepreneurs)

Venture Capital

When it comes to funding entrepreneurial startups—especially high-tech, high-growth companies—most people think of venture capital. Take any modern, startup-to-billion dollar success story, and you’ll find that the company had significant investment, and help, from venture capitalists.

The Venture Capital Industry

Venture capital firms typically manage money on behalf of large institutions (e.g. pension funds, university endowments) and sometimes on behalf of corporations and extremely wealthy individuals. VC firms then try to identity and invest in high-growth companies that will transform the investment into windfall returns. Some quick facts:

  • VC fund sizes range from the small (under $150M), medium ($250M to $1B) to large (>$1B).
  • As a general rule of thumb, VCs know that 4 out of 5 of the companies they invest in will fail (i.e. not provide an acceptable ROI), so:
  • VCs need companies that are capable of (or have the potential) to generate 20, 50 or 100 times the original investment in 5-10 years.
  • VCs are looking for companies that can scale.

During 2016[3], total invested: $59.3 Billion in 4,799 deals—broken down as follows:

  • Seed Stage: $2.07B in 1,428 deals
  • Early Stage: $10.48B in 1,272 deals
  • Expansion Stage: $20.65B in 985 deals
  • Later Stage: $20.84B in 429 deals

The total invested—$59.3 Billion—is quite a large number—and that is just in one average year. But looking at the details we see:

  • VCs funded fewer than 1,500 seed stage companies (i.e., their first money in).
  • And even if you look at all of the “startups,” they only invested in 2,700 companies. Given the number of companies formed each year seeking funding, it doesn’t take much to figure out how rare attracting venture capital really is.

But let’s take a look at where venture capital is being invested, into what industries and what kinds of companies, so you can determine if there is alignment with your objectives:

Sectors Invested by VCs—in Seed/Early Stage Companies[4]

Sectors Invested by VCs—in Seed/Early Stage Companies Table
Year Traditional Media Investment Total Investment
2012 $742,020,000 $32,692,900,000
2013 $186,070,000 $35,949,570,000
2014 $280,900,000 $58,743,560,000
2015 $287,560,000 $74,405,520,000
2016 $209,540,000 $62,750,350,000
2017 (Q1, Q2 only) $27,380,000 $32,811,520,000


Number of VC Deals by Year Table
Year Number of Deals (Traditional Media) Total Number of Deals
2012 9 4,605
2013 15 5,021
2014 9 5,710
2015 11 5,650
2016 8 5,004
2017 (Q1, Q2 only) 6 2,358

VCs predominantly invest in Internet, mobile/telecom and software companies—both in the number of deals and the amount invested. Note that out of 4,799 total deals in 2016, only 8 of them were in media. Media received an infinitesimal amount–not even 1 percent–of the total dollars invested.

Where VCs Invest (Regionally)[5][6]

The top five regions for VC investment in 1Q 2017 were San Francisco, New York metro, Silicon Valley, New England, and the Southeast, according to a recent PwC MoneyTree Report. National Venture Capital Association and PitchBook Data[7] shows that more than half of the value of first-quarter VC deals was invested on the West Coast.

Not surprisingly VCs invest within the top regional entrepreneurial ecosystems in the U.S. While not a hard rule, the prevailing wisdom is, if you want VC funding, prepare to move to Silicon Valley, New York, or Boston.

How to Find VCs

It’s easy to search the Web for venture capital firms—most belong to the NVCA (National Venture Capital Association)— And VC firms’ partners and associates can be found speaking at local venture/entrepreneur events, sitting on panels, blogging, or writing articles. Identifying VC firms and partner names is usually not that hard.

In-Class Exercise

Look up the top five venture capital firms and identify one of their partners in your region.

But, as we’ll find with almost every kind of investor—the most common (and preferred) method of connecting to an venture capitalist (or angel investor) is through a personal introduction. Cold calls or unsolicited emails usually won’t get any response.

The most common complaint among young entrepreneurs is that they don’t know anyone who would provide an introduction. But introductions to busy VCs aren’t impossible, even for brand-new entrepreneurs. Many VCs participate at local entrepreneurship events, panels, or contests and are fairly easy to meet. Entrepreneurs usually interact with other entrepreneurs, advisors, mentors, lawyers, accountants etc., all of whom may be able to provide an introduction—directly or indirectly—to a venture capitalist.

How to Determine if VC Funding is Appropriate for your Company

VCs generally like the following conditions for investing in a company.

  • Solving a clear market pain, problem (or opportunity)—the bigger the better
  • A strong team with clear track record—that can execute on the plan
  • An “unfair advantage” over potential competition
  • Demonstrating customer traction
  • Demonstrating market validation (product-market fit)
  • If your startup is weak on any of those conditions, either VC funding may night be the right path, or you need to demonstrate how you will address the weaknesses.

Instructor Resource

  • Look up successful companies that got their initial, external, funding from angel investors vs. VCs. Discuss the origin stories of Google and / or Facebook.
  • Look at case studies where the presence of too much venture capital was cited as the cause of failure for a well-known venture. Examples include Webvan, Kozmo,, Flooz,, and others. Use this list[8] as a starting point.

Angel Funding

For earlier stage startups, angel investors are the more likely alternative to VC funding.

Some metrics for angel funding for the year 2016:[9]

  • A total of 64,380 entrepreneurial ventures received angel funding,
  • from 297,880 active investors,
  • for a total of $21.3 billion,
  • with an average deal size of $330,185.

How to Find Angels

Given the number of angel investors (or potential angels) out there, finding an angel is a lot easier than finding a venture capitalist.

In his popular blog “Startup Professionals” blogger, advisor and angel investor Martin Zwilling offers some concise advice for finding and engaging with angel investors:[10]

  • Angels invest in people, more often than they invest in ideas. That means they need to know you, or someone they trust who does know you (warm introduction). For credibility, they need to know you BEFORE you are asking for money.
  • Angel investors are people too. Investors expect you to understand their motivation, respect their time, and show your integrity in all actions. They probably won’t respond well to high-pressure sales tactics, information overload, or bribes.
  • Angels like to “touch and feel” their investments, so they are generally only interested in local opportunities. It won’t help your case or your workload to do an email blast and follow-up with 250,000 members around the world.
  • But angel investing is risky and time consuming—so more and more, angels are pooling their money and joining groups.

Angel Groups

In 2016, direct investments reported from U.S. angel groups more than doubled from the year prior:[11]

  • The median size of investment (where angel groups co-invest with other investors) in first-round deals was $950,000.
  • Groups located in the Northeast make roughly 7 percent of their investments outside of their region, while California groups make 43 percent of their investments outside their state. Having access to the necessary resources and tools is crucial for the success of angel groups looking to invest outside of their region.
  • California accounted for 30 percent of all angel-funded early stage deals in 2016, followed by the Southeast, New York, and the Northeast, all of which hovered around 10 percent. Angel groups invested in software (34.3 percent), health care (17.3 percent), B2B (13.0 percent), Internet and mobile (11.2 percent), and B2C (10.3 percent). No other industry or sector generated more than a 2 percent share in funded deals.

The most active angel groups with multiple locations or networks included Keiretsu Forum, Tech Coast Angels, Investors Circle, Golden Seeds, and Astia Angels.

Resources for Finding Angel Groups:

  • Gust [12] (formerly AngelSoft)
    This is perhaps the most widely used source of information on angel investor groups. Gust claims to have facilitated over $1 billion of investments in 500,000 startups to date, via connection through their platform to over 70,000 angel investors in 190 countries.
  • AngelList [13]
    AngelList has featured over three million businesses for potential investors in a format that is, effectively, a social network for entrepreneurs and angels. They claim to have already raised over $560 million for 1,400 startups, primarily in the U.S. and Europe. In addition, they serve as a jobs available site for 24,000 startups.
  • Keiretsu Forum [14]
    This site claims to be the world’s largest single angel investor network, with 2,500 accredited investor members throughout 52 chapters on three continents. Since its founding in 2000, its members have invested over $800 million dollars in over 800 companies in technology, consumer products, health care and life sciences, real estate, and other segments with high-growth potential.
  • USA Angel Investment Network [15]
    This group claims to be the largest angel investment community in the world. They have already raised $300 million for startups in the U.S. and across the world.
    The reach is very broad, with a network has 30 branches extending to 80 different countries. They have over 785,000 registered members with 140,000 investors and 650,000 entrepreneurs.
  • Angel Capital Association (ACA) [16]
    The ACA is the angel industry alliance, which now includes a directory to more than 240 angel groups and 13,000 individual angels across North America. ACA member angel groups represent more than 10,000 accredited investors and are funding approximately 800 new companies each year, and managing an ongoing portfolio of more than 5,000 companies throughout North America.

Angel Funding

Angels invest in far more early stage companies than venture capitalists. And while the average investment is approximately $330,000 (for individual angels) and $950,000 for groups—angels often invest as low as $10,000, $20,000 or $50,000—making them a very attractive source of funding for early stage ventures.

Further Reading


CJ Cornell is a serial entrepreneur, investor, advisor, mentor, author, speaker, and educator. He is the author of the best-selling book: The Age of Metapreneurship—A Journey into the Future of Entrepreneurship[24] and the upcoming book: The Startup Brain Trust—A Guidebook for Startups, Entrepreneurs, and the Experts that Help them Become Great. Reach him on Twitter at @cjcornell

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  1. Arnobio Morelix, “Insights from the Fastest Growing Companies in America,” Slideshare, March 2015, The Kauffman Foundation is based in Kansas City, Mo., and is among the largest private foundations in the United States with an asset base of approximately $2 billion. They are focused on entrepreneurship—education and research.
  2. Bill Payne, “The Funding Gap,” Gust Blog, December 6, 2011,
  3. “PwC Moneytree Report 2016 Final,” PwC,
  4. "PwC Moneytree Report 2016 Final,” PwC,
  5. “Venture Monitor,” National Venture Capital Association and PitchBook Data, Inc.,, and
  6. “PwC / CB Insights MoneyTree(™) Report, Q1 2017,” PwC, pdf
  7. “Venture Monitor,” National Venture Capital Association and PitchBook Data, Inc.,
  8. “111 of the Biggest, Costliest Startup Failures of All Time,” CB Insights Blog, June 22, 2017,
  9. Liisa Rajala, “Angel Market Sharnk in 2016,” NH Business Review, June 23, 2017,
  10. “If You Can’t Find an Angel Investor, Look Again Here,” Startup Professional Musings, June 11, 2017,
  11. “Angel Resource Institute Halo Report (2016),” Angel Resource Institute, percent20Annual percent20Halo percent20Report and
  12. Gust,
  13. AngelList,
  14. Keiretsu Forum,
  15. Angel Investment Network,
  16. Angel Capital Association,
  17. CJ Cornell, “8 Simple Rules of Angel Investing,”,
  18. Brad Feld, "Term Sheet Series Wrap Up," Feld Thoughts, August 2005,
  19. “Angel Investing: Term Sheet Economics,” Women Invest, March 25, 2013,
  20. “VC Nomenclature and the Investor Spiral,” Fortune, May 16, 2011,
  21. “How to Read a Term Sheet,” Hyde Park Angels, July 21, 2015,
  22. The Most Active Corporate VCs in Q1/Q2 2016,” Plug and Play, November 14, 2016,
  23. Todd Miller, "Term Sheets: The Definitive Guide," Capshare blog
  24. Cornell, CJ, The Age of Metapreneurship, (Phoenix: Venture Point Press, 2017).


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