In 2014 only a small proportion of US startup companies drew on venture capital funds and crowdfunding platforms to get their business up and running, most preferring to ‘bootstrap’ the business using their own funds, with help from family and friends and bank loans. Nevertheless, the crowdfunding phenomenon worldwide saw a huge rise, enjoying a record year.

Startup Funding 2014: Bootstrapping Dominates, Crowdfunding on the Rise

The year 2014 ended with record figures for funds raised by ICT companies, but investments from venture capital firms amounted to only approximately 1% of all financing received by startups. An infographic published by Fundable, a US-based crowdfunding platform that hosts both rewards-based and equity-based financing campaigns for small businesses, provides an overview of the various sources of funds raised by US startups during last year, based on figures collated by the National Venture Capital Association, a trade association representing the venture capital industry in the United States.

While small businesses in the United States received a total of $30 billion in funding during the last quarter of 2014, 82% of all new firms last year were financed by ‘bootstrapping’, i.e. their founders invested their own money to launch their companies. Some 24% of those polled during a survey stated that they had received help from family and friends, while 41% of the fledgling firms also had recourse to bank loans. Meanwhile crowdfunding helped to launch just 3% of US startups in 2014. The figures add up to more than 100% as in most cases the founders drew on multiple sources of funding.

If the proportion of startups calling on crowdfunding looks very small, it should be pointed out that this approach to financing new businesses has nevertheless seen a sharp rise worldwide. The latest report from the UK-based Crowdfunding Centre reveals that the crowdfunding industry grew to $5.1 billion during 2014, posting a record year. On average $2 million was pledged by the general public every day. Unsurprisingly, San Francisco is the US city where crowdfunding is most popular, the Fundable infographic shows.

Again it perhaps comes as no surprise to see that the software industry was the highest funded sector during 2014, garnering over $13 billion, while in comparison companies offering consumer products and services raised a total of just $1.5 billion.

By Eliane HONG