The Kansas-based Kauffman Foundation recently presented a survey of U.S. company founders. Although the survey focuses on U.S. entrepreneurs, it provides some useful insights for entrepreneurs in developing countries.
Certainly, business creation plays a crucial role in boosting economic growth and productive employment anywhere in the world. In turn, many development experts have endorsed U.S. political economy institutions because they have shown to be a central foundation for entrepreneurship and innovation. For instance, Hernando de Soto based his reform of property rights in developing countries on the example of U.S. property rights institutions.
Nonetheless, the survey’s striking finding is that the main source of funding for first-venture businesses is company founders’ personal savings (70%). In other words, a large majority of U.S. entrepreneurs do not employ the formal financial market channels and rely on personal finances in order to start a business.
The 70% rate seems to suggest that U.S. entrepreneurs are not entirely different from those in developing countries, where financial markets are generally lacking. In addition, the survey finds that “friends and family and bank loans” are a source of funding for around 13% to 16% of the sample.
The survey does not break down how much of that 13-16% corresponds to bank loans, but it shows, yet again, a similarity between U.S. and developing countries’ entrepreneurs.
The implications are not that everything is fine in the developing world’s political economies. In fact, starting a company is just a step towards developing a successful business. The U.S. market clearly offers more post-founding success chances to entrepreneurs than most places in the world. However, if entrepreneurs behave similarly across the world when funding their first business, maybe development experts’ should shift their focus to business-operation easing instead of business-creation financing.
Published Date: December 03, 2009