4 as you might expect the picture is a little

4
As you might expect, the picture is a little different for serial entrepreneurs and their subsequent
startups. More than half of the entrepreneurs still relied on their personal savings. But the proportion of
entrepreneurs who obtain angel and venture funding increases with each subsequent business launch by
the entrepreneur. A study of serial entrepreneurs found that 22% received private/angel financing and
26% received venture capital for their latest startup. Friends and family provided funding for 16%, and
banks provided funding for 16% of the respondents’ most recent startups. Direct strategic corporate
investments comprised 7% of early­stage financing. Keep these statistics in mind as we discuss the
various sources and types of venture funding.
Let’s dig a little deeper into these investor types—their mindsets, motivations, and expectations for
venture investing.
Founder Self­Financing

A common rule of thumb is to have enough cash saved to cover at least six months of basic personal
living expenses before starting a business. It takes time for any business to reach breakeven and then to
be able to provide consistent cash flow to pay the founding entrepreneurs and their initial staff.
Entrepreneurs learn quickly that it takes some money to make money. Sadly, many entrepreneurs are
forced to give up a new business because they simply run out of cash for basic operating expenses.
When self­financing, the entrepreneur may draw upon any number of potential sources of personal
funds, including the following:
Personal cash . Entrepreneurs who have personal net worth often worth draw on personal assets to
support a new venture. These funds are in invested directly into the business and comprise the startup
capital or equity for the venture. Apart from the considerable “sweat equity” that you are investing in
doing the work for Parts I and II of this book—do not undervalue the importance of this work for any
venture!—you might also have the ability to invest the $10,000 to$15,000 needed to build your first
prototype, or get some business cards, stationary, and marketing collateral needed to start providing your
first professional services. Of course, not all businesses are amenable to low capital “alpha” and “beta”
tests, and you’ve got to pay rent or the mortgage, and eat once in a while as well. Other common uses of
personal cash invested in the business include buying equipment, inventory, and other startup expenses.
Personal cash may also be used as a backup source of cash for personal needs for those times when a
business is not able to pay the entrepreneur a salary.
Other personal assets . Often a business grows out of a part­time endeavor, personal interest, or hobby.
In such cases, the entrepreneur already will have purchased tools and other equipment to support this
interest or hobby. This equipment became an asset of the business and was treated as part of their equity
contribution as shareholders of the business. Other common assets that are brought into a business
include computers, cell phones, and office furniture.