If you’re an entrepreneur starting or expanding a business next year, don’t expect a lot of money coming from venture capital according to a new survey released. The decade ending in June of 2011 has been one of the worst in history for venture capital averaging only a 1.3% return compared to a 4.2% return in the Dow Jones Industrial Average and a 2.7% in the S&P 500 index.
Venture Capital firms typically hold the funds of the partners in the firm for at least a decade making the benchmark performance measured in decades instead of years. Because of the abysmal returns, VC firms are only lending to larger companies much further in to their development cycle so young firms or those who are only now entering the marketplace may have a difficult time gaining VC funds.
If venture capital funding isn’t an option for your business startup, where should you go? First, although the news of less than impressive returns for VC firms is disappointing, VC firms generally lend to larger startups. If you’re a small local business, you probably weren’t eligible for VC funds anyway so where do you go for funding?
It’s true that banks aren’t lending the way they used to be but the money is beginning to flow. Your chances of securing a bank loan is much better than in the past. Additionally, there are government guaranteed small business loans that were created for people who are just getting their business started.
Angel investors are similar to venture capital funds except that they may be individual investors looking to provide smaller amounts of funding to local businesses in their geographic area. Angel investors aren’t interested in providing millions of dollars to a capital intensive startup. Look for angel investing clubs in your area or ask local attorneys or wealth advisers for leads.
They say you should never take a loan from family or friends and that’s good advice. Instead, form a corporate structure that offers them equity in your startup in the form of stock. A business registration company can help you set up this type of structure when you register your business with your state.
Venture Capital is feeling the effects of a challenging economy but that doesn’t mean that you can’t secure the funding you need to open or expand your startup.