Early stage startup funding challenges
The amount of time it takes for startups to secure enough capital to start and maintain a business can be pretty lengthy for a number of reasons. Some companies are borrowing from a traditional lender like a bank, which can take a while for funds to be released. Other companies might need more money than one or two investors can provide and will therefore spend a lot of time seeking out new individual investors or firms. And if these companies are growing at a rapid rate, this process will be even more difficult, because they need larger sums of investment capital in order to meet demand and expand operations.
The Early Stage Innovation Funds initiative started by the Small Business Association works to give high growth startups the large investments they need by matching the investments of private lenders. Analysis performed by the SBA shows that many high growth companies just starting out rarely receive the full amount of funding they need to get up and running; they’re growing at a rate so fast that they need more funding to keep up with demands than would another company that’s developing more slowly.
Early stage startup funding gap
Research shows there is a funding gap for companies seeking between $1 million and $4 million, referred to as the “Valley of Death.” Looking at numbers as far back as 2006, only 10 percent of all capital funded went to startups seeking amounts within this range, and of that 10 percent that received that large of an investment, 70 percent of those businesses were in New York, California or Massachusetts.
The SBA recently licensed Hatteras Venture Partners as one of its lenders under the initiative, allowing the firm to receive up to an additional $50 million in SBA-guaranteed funding to match their initial startup investment contributions. The venture capital firm is focused on assisting businesses in the biopharmaceuticals, human medicine, and medical devices industries.
By leveraging private lenders such as Hatteras and matching their funds given, the SBA helps perpetuate a cycle of investment and positive growth for startups that are accelerating rapidly and need multi-million dollar investments in order to meet demands and maintain their strong patterns of growth. Fund managers have until March 1st of this year to complete the application needed to participate in the second year of the overall five year initiative.