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Why Equity Financing Eludes Startups

Despite the hype surrounding equity capital, very few startups raise money from outside investors. The Census Bureau's most recent Survey of Business Owners shows that only 2.7 percent of U.S. companies obtained startup financing from a venture capital firm, strategic investor, friend, or family member. Even raising external equity after the startup stage is uncommon. Data from Angelsoft, a provider of angel investment tracking software, reveal that only 2.8 percent of those seeking money from angel groups receive it. The share of successful requests for venture capital is even lower. A primer on venture capital produced by the Small Business Administration estimates that only 0.1 percent to 0.2 percent of funding requests made to VC firms result in an investment.

So why do so few succeed at getting others to invest in their businesses?