Supply and Demand Misbalance in Capital for Entrepreneurs
Recently I was researching the state of VC industry in the World, it’s trends and potential on the one hand. And increasing number of entrepreneurs on the other hand.
Amasingly how unequally capital is distributed and provided to entrepreneurs, especially it’s true for early-stage entrepreneurs (from preseed to startup stages without first revenues). Research showed that we have only three main sources of capital for early-stage entrepreneurs: Venture Capital ($8,77B), Business Angels Capital ($21,8B) and (!) Private Capital of the Crowd ($39M). This data is extracted from reports of GEM, Dow Jones VentureSource, Venture Research Center, Preqin Venture Deals Report in 2012.
Thus, world have around $31B capital available for early-stage entrepreneurs coming mostly from traditional sources. However, the capital demand is much higher and leveled above $2500B
There is strong misbalance between supply of capital by VCs, Business Angels, Private Capital and demand of capital by entrepreneurs (there are around 388 mln entrepreneurs around the globe). You can see it in the figure above.
Demand for capital from entrepreneurs
There were around 388 million entrepreneurs in the World (2011) according to the latest GEM Report. My estimation showed that in 2012 there is around 446 to 485 million entrepreneurs, in 2013 there will be around 513 to 606 million entrepreneurs. Pessimistic estimation give us 51,3 to 55,8 million early-stage entrepreneurs. We consider this type of entrepreneurs because the demand for capital at this stage is the highest one. Average preseed money required by early-stage entrepreneur is $50K. Simple calculation can show that world’s demand is leveled above $2500B in 2012. Which is much higher than all sources could propose in the earliest stages. However, it’s commonly understood that innovation starts there, ideas start there, concepts and disruptive technologies are developed by early entrepreneurs, not mature ones. Here comes question: “How can we satisfy this demand for capital and finance not only selected 1% of all entrepreneurs?”
The answer could be as it is presented below: