Venture Capital Is the Primary Source of Start-Up Funding?

Investment and Venture Capital

Assignment 2

Question

In less than 1,000 words, write a critique on the Harvard Business Review article “Six Myths About Venture Capitalists”. Pick one myth and back your view up (whether you agree or disagree) with some research. Please quote the reference if any.

https://hbr.org/2013/05/six-myths-about-venture-capitalists

Answer

Myth 1: Venture Capital is the primary source of start-up funding

With the fast development of internet, we are able to get different kinds of information much more easily than in the past century. In the past, it is not easy to obtain information to start a business including the product knowledge, the market trends, management skills and funding etc. With Venture Capitalists, who can provide funding and the necessary information like the knowledge of certain industry to Startup Company in order to help the Startup Company to the road of succeed. Therefore Venture Capitalist was the primary source of start-up funding.

In the early 1980s, Venture Capitalist invested a substantial portion into the “seed/startup” stage of portfolios. But their investment pattern changed eventually. In the early 1990s, their investment pattern shifted to invest more into early-stage, expansion-stage and the later-stage. In the early 2000s, proportion invested in the “Seed/ Startup” stage kept declining to less than 10%.

VC Investment by Stage

According to the website “Angleblog.net”, Venture Capitalist no more the main source of funding for startup companies for in 20th century. The hypothesis can be supported by the data from different research results. The National Science Foundation data showed that there were 612 seed or startup companies funded by Venture Capitalist out of 2578 seed or startup companies, which made up about 23.7%. And Federal Reserve did a study on Small Business Finances in 2003, which estimated that Angel investors funded about 50,700 seed or startup companies each year in...