“Access to Funding” Is More About Perception than Reality

Yesterday I had a conversation with someone who wanted to establish a substantial private investment seed-stage fund in Baltimore. Combined with the efforts of several groups, including Baltimore Angels and the new proposed Invest Maryland $100M fund, I remarked that there might suddenly be a glut of available funding for companies!

What would this mean? Some have said that the mid-atlantic region has suffered from a shortage of startup funding; that angels are too few and far between, and that large investors and VC firms are “risk averse.”

I don’t think this is a) the real issue, or b) especially true. Companies that have shown strong growth have had no problem securing the funding they need. I’m thinking of Sourcefire, Advertising.com, BillMeLater, Under Armour, and plenty of others.

But this does not mean that a perceived surplus of funding would be a bad thing. If a perceived availability of capital caused an influx of folks looking to engage in entrepreneurship, more entrepreneurial efforts would form. If more people were confident that they could grow a new business when they meet with success, then they would be more inclined to get to that point.

Most entrepreneurial endeavors really don’t need much in the way of funding; the best companies start when people throw their lots together to work on things they care about. Often, young people do best at this because their cost of living is lowest.

So, since “funding” is actually the last thing that most startups actually need, how would the psyche of potential startup entrepreneurs be affected if lots of funding was obviously and ostensibly available?

I think it would help, but not because people are taking advantage of the access to funding. It would help because it would lessen fear around entrepreneurship and convince more people that it was a “normal” path to pursue. So, let’s bring it on. Prepare for a glut of startup funding in Baltimore. It’s coming, and you don’t even especially need it.

What would you start working on today, knowing that there’s plenty of funding coming for ideas that show promise?


#1 John Gallagher on 09.18.10 at 9:50 pm

>If a perceived availability of capital caused an influx of folks looking
>to engage in entrepreneurship, more entrepreneurial efforts would

Hmmm. Surely if someone's only building a startup because there's funding available, then they shouldn't be building it at all? Won't they quit when the going gets tough if funding were a decent motivator for them?

>It would help because it would lessen fear around entrepreneurship and
>convince more people that it was a “normal” path to pursue.

I just don't see how that would work. Surely giving someone millions of dollars and saying “now we want to see a return on that investment, guys” increases fear, not reduces it?

And even if the funding wasn't used, surely the “normal” path is to build a business that makes money? That's what businesses have been doing for generations, after all.

And even if you disagree with that, I still don't see how having millions of dollars of funding on tap would make anyone think this was a normal path to take. How often do people come up to you in the street offering you millions of dollars to start a business? Surely that's the exact opposite of normal?

#2 David Troy on 09.19.10 at 12:47 pm

You're sort of missing the point; I'm really not especially keen on people taking funding, and certainly not millions of dollars worth of it. I'm also less concerned about individual companies than I am about the ecosystem as a whole.

Let's consider two scenarios.

In Scenario A, people think funding is scarce, investors are risk averse, and there are few examples of successful exits.

In Scenario B, there is a perception that funding is plentiful, investors are willing to try things, and people see many examples of entrepreneurs growing companies successfully.

In Scenario A (which is what exists now in many places), fewer people will be interested in entrepreneurship than in places where Scenario B is more descriptive.

Notice that the difference between A and B is NOT the number of companies that are actually funded, and it certainly does not imply that folks in scenario B receive large amounts of funding (as you seem to be inferring).

The ONLY differences are 1) perception, and 2) behavior. If more people are willing to start to consider entrepreneurship if they THINK there is “access to funding” then I am all for creating that perception; however irrelevant a factor it may, in fact, be.

#3 Seth Nenstiel on 10.03.10 at 6:39 pm

What scares me is that people may get the idea that there is 'money for the taking,' and they will seek out and abuse the funding. Obviously what safeguards this is the need for a well thought out business plan, a group of people who genuinely want to succeed, and most importantly the time that needs to be invested into creating these two things.

When things start to get dicey and entrepreneurs need more funding to actually pull through with their business, where is the line drawn?

I also sort of agree with John, I don't see how having money available for funding start ups will necessarily increase perception that becoming an entrepreneur is the 'normal' thing to do. What does this is a community who actively seeks out and helps grow people who have ideas; just how religion has been working for thousands of yeas.

#4 John Cutonilli on 10.09.10 at 12:17 am

I think the headline should read “life” is more about perception than reality. Most everything we do is based on our perception of the problem rather than the reality. It's what makes solving problems so difficult. We wind up solving what we think the problem is rather than what it actually is.

I agree with you that funding is not the real issue with entrepreneurship. I don't believe that this new funding will have much of an effect on startups. If they put a lot of requirements on the money, like they do now, not may people will use the money. If there are few requirements on the money, most of it will be spent on people finding out that their initial direction was wrong and few actual businesses will be created.

If I could spend that money, I would build a different type of incubator. One that was focused on effectuation. The current incubators seem to be focused more on planning and causal approaches, which has been shown to be a less effective approach to entrepreneurship compared to the effectual approach.

Since the effectual approach evaluates opportunities based on the resources available, this effectual incubator provides a wide variety of resources and technologies. These resources include both hardware and software and allows both virtual prototyping and rapid prototyping to take place. It's a place where entrepreneurs can go to refine their ideas and get feedback among fellow entrepreneurs and potential clients.

To get more people to be entrepreneurs, all you need to do is change their perception of the risk. When you allow them to experience their idea and surround them with like minded people, you begin to change their perception, and more people will become entrepreneurs.