Changing Capital: Emerging Trends in Entrepreneurial Finance

Capital is obviously vital to entrepreneurs, and the sources and types of capital available to them are changing. The gaps that exist between investors and entrepreneurs have narrowed due to networks created by new technologies. Easier communication has created new ways for investors to aggregate and deploy capital. Furthermore, the transaction costs of capital formation are falling rapidly, as evidenced by the growth of phenomena such as crowdfunding, online angel syndicates, online lending, and new venture funds operating beyond traditional hubs and with novel investing goals.

The Kauffman Foundation seeks to provide improved data and analysis about trends in entrepreneurial capital formation so that we can encourage efforts to enhance the success rates of entrepreneurs everywhere. This report examines current developments in the field, draws out some broad trends, and considers their implications for entrepreneurs.

Data collection was carried out across several parts of the emerging capital landscape. Fourteen interviews were completed with experts across venture capital (VC), angel, crowdfunding, microfinance, and others involved with new financial technologies and products. Datasets and key industry publications were analyzed for venture capital (National Venture Capital Association and Thomson Reuters), angel syndicate investments (Angel Capital Association, Angel Resource Institute, Halo, and Pitchbook), angel investors (Center for Venture Research), and crowdfunding (Equity crowdfunding portals, Crowdnetic, and Kickstarter). More information on methodology and the datasets used can be made available upon request.

Based on interviews and data collected, we identified the following trends:

1. The VC industry is shifting at the biggest and smallest ends of the market.
2. Online platforms—for crowdfunding, angel syndication, and lending—are increasingly important options for seed-stage and early-stage startup needs.
3. Sources of capital are emerging outside of traditional geographical hubs.
4. Women are playing more decision-making roles in entrepreneurial capital.
5. There is robust experimentation with differentiated capital models.

In this report, we explore each of these trends based on a review of data, analyses, and case stories.