Despite some media reports you may have heard of late, the startup sector has remained both resilient and enduring.
While venture capital funding in the Q1 of 2023 is only at approximately 40% of the Q4 of 2021, nonetheless talk of a “mass extinction event” of new startups is both premature and misinformed.
Rather, accounts for the drop in venture capital, in all likelihood, is funding not being forthcoming for startups with shaky premises and deeply uncertain CFPs (Cash Flow Projection), and who can blame venture capitalists for not wanting to invest in such outfits after all?
What is becoming clear, though, is that the current unmistakable trend is venture capital funding going in the direction of emerging AI startups that are becoming more prevalent.
Meanwhile, in the world outside Big Tech, startups are flourishing, especially in areas like the restaurant, real estate, and healthcare sectors. From January 2019 to May 2023, the number of new startups in the U.S. topped 20.5 million. Even more impressive is the fact that business across all sectors was badly hit by the pandemic during that period.
Clearly, capital has become more expensive and a national bank prime rate of 8.25% is leading directly to higher interest rates on loans, which can add considerable expense for a fledgling new business. But it doesn’t seem to be hindering budding new entrepreneurs and that’s a very healthy sign.
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One of the reasons for this is the fact that according to data compiled from loan company Lendio, around 54% of new startups are founded using the owners’ own personal finances. And those that do borrow for capital, the average amount is a relatively paltry $47,000 on average.
Thus, talk of “mass extinction events” belong more in the realm of sci-fi movies than real-world economic forecasts. Ample capital is available for those budding captains of industry dreaming big enough to make it in the cutthroat business arena. America is still the land of opportunity and all data points to many wanting to and actively seeking that opportunity. Long may they continue!
