WELLESLEY, Mass., Aug. 11, 2016 /PRNewswire-USNewswire/ -- The
global financial crisis has left a lingering mark on
entrepreneurship across the globe, with 95 percent of
entrepreneurs relying on their own funding for startup
ventures—this according to the Global Entrepreneurship Monitor
2015-2016 Special Report on Entrepreneurial
Finance (pdf), released with sponsors Babson College, Universidad Del Desarrollo,
Universiti Tun Abdul Razak, and Tecnológico de Monterrey.
This special report studied entrepreneurial finance patterns
across the globe. The last of its kind was issued 10 years ago,
prior to the 2008 downturn. Since then, availability of funds,
sources of funding, as well as the cost of starting a business have
all evolved.
"Although the average cost of starting a business has dropped,
access to finance is one of the most serious problems for
businesses in many economies, with small and medium-sized
businesses struggling the most," said Babson
College Senior Lecturer and report co-author Caroline
Daniels.
The average amount needed to start a business in 2004 was
$54,000 and $65,000 in 2006. In 2015, the median amount was
just $13,000.
"Although medians were used in 2015, as opposed to average
amounts in previous reports, this drop does indicate a willingness
among current entrepreneurs to start a business with fewer
resources and the capability to do so. We think that this has to do
with the influence of the internet," said co-authors Mike Herrington and Penny Kew.
"This indicates a much stronger sense of self-reliance in the
present economic climate," adds Herrington.
Entrepreneurs are also increasing the proportion they invest on
average—in 2014, they provided 66 percent of their startup capital,
while in 2015 they provided 72 percent.
For many entrepreneurs, their own savings, as well as informal
investments from neighbors, family, and friends played an important
role; contributions from strangers was rarer. "Beginning life in a
privileged position, therefore, still gives entrepreneurs a
jump-start, particularly in Africa
and North America, where rates of
informal investment are highest," says Kew.
The impact of informal investment on entrepreneurship is
immense. Since 2012, an average of six percent of the global adult
population have provided informal investment to an entrepreneur per
year, totaling over $1 trillion
between 2012 and 2015. This is an increase since the 2006 GEM
report on financing, which calculated that four percent had
provided informal investment, totaling $600
billion. (Note: 42 countries participated in the 2006 GEM
survey, compared to 66 countries from 2012-2015).
The report shows that traditional forms of entrepreneurial
finance are increasingly being supplemented by burgeoning sources
such as peer-to-peer lending, crowdfunding, microfinance, and
community cooperatives. At the same time, industries, business
models, and the concept of the 'marketplace' is being redefined by
mobile technology.
Daniels says globalization and the role of technology—including
social media—cannot be underestimated, particularly in more
developed nations. "Entrepreneurs in North America are substantially more likely to
have access to more sophisticated sources of entrepreneurial
funding, such as VC and crowdfunding," she explains. "Fourteen
percent of North American entrepreneurs are financed through
crowdfunding. By contrast, Africa
and Asia & Oceania, at just
two percent, lag significantly in terms of access to this form of
funding."
Business is increasingly global, adds Daniels. "As the awareness
of who has access to resources is growing, stakeholders are
exploring ways to increase the types of financing available in all
economies."
Additional Key U.S. Findings
- North Americans are the most likely to fund work colleagues.
- They are also the group most likely to fund strangers—a fifth
of informal investors in North
America fall into this category.
- North America has the second
highest percentage of early-stage entrepreneurs who received funds
from informal investors at 11 percent. Africa had the highest at 12 percent.
- Globally, North American entrepreneurs required the highest
amount of capital to start a business, alongside Europe.
- In North America,
entrepreneurs projecting six-plus jobs require seven times more
money, on average, than those projecting zero to five jobs.
- This compared to a differential of 2.5 in Latin America and the Caribbean.
- North America reports the
highest internationalization levels of all regions alongside
Europe, with each region
reporting, on average, around one fifth of entrepreneurs with
substantial international sales (25 percent or more).
About the Report
The Global Entrepreneurship Monitor 2015-2016 Special Report
on Entrepreneurial Finance analyzes the GEM 2015 findings on
entrepreneurial finance. A key focus is to develop an understanding
of the current entrepreneurial financing ecosystem as experienced
by GEM's diverse set of economy members, and to highlight regional,
as well as economic development phase trends in terms of sources
and usage of entrepreneurial finance.
This special report is authored by Babson
College Senior Lecturer of Entrepreneurship Caroline
Daniels; University of Cape Town Professor and Global
Entrepreneurship Monitor Executive Director, Mike Herrington; and Penny Kew.
About the Global Entrepreneurship Monitor (GEM)
The Global Entrepreneurship Monitor (GEM) was initiated in 1999
as a joint venture of Babson College
and the London Business School.
Starting with 10 participating economies, the project expanded to
include 73 economies in its 2014 survey. The latest survey spans 62
economies. GEM is the largest and most developed research program
on entrepreneurship in the world. GEM is unique because, unlike
most entrepreneurship data sets that measure newer and smaller
firms, GEM studies the behavior of individuals with respect to
starting and managing businesses. GEM academic teams in each
participating economy are members of an exclusive research project
that provides access to the collective knowledge of some of the
world's most renowned researchers and institutions involved in
entrepreneurship research. At a time in history when individual
entrepreneurial activity may hold the key to transforming the
global economy and discouraging ingrained economic disparity in
countries with minimal economic opportunity, GEM data has
influenced national economic policies and continues to expand its
collaborative role. Global sponsors of the research include
Babson College (lead sponsor) in
the United States, Universidad Del
Desarrollo in Chile, Universiti
Tun Abdul Razak in Malaysia, and
Tecnológico de Monterrey in
Mexico. For more information,
follow GEM on Twitter.
About Babson College
Babson College is the educator,
convener, and thought leader of Entrepreneurship of All
Kinds®. The top-ranked college for entrepreneurship
education, Babson is a dynamic living and learning laboratory where
students, faculty, and staff work together to address the
real-world problems of business and society. We prepare the
entrepreneurial leaders our world needs most: those with strong
functional knowledge and the skills and vision to navigate change,
accommodate ambiguity, surmount complexity, and motivate teams in a
common purpose to make a difference in the world, and have an
impact on organizations of all sizes and types. As we have for
nearly a half-century, Babson continues to advance Entrepreneurial
Thought & Action® as the most positive force on
the planet for generating sustainable economic and social
value.
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