The answer is simple – no. At least the answer is no in a study of 5,000 businesses started in 2004. Scott Shane writes an interesting article on this study. The most enlightening part of the study is the relatively small amount of the total new venture financing that comes from the illustrious group referred to as friends and family. Only five percent of the new companies received equity from this group. Most in the business plan, new venture, and entrepreneurship fields stress the importance of approaching friends and family first for start-up and growth capital. Whatever the cause is, the result is clear – funding is coming from other sources. So, should a new venture even try to raise capital from friends and family? While the answer will always depend on each set of unique circumstances, friends and family are usually one of the cheapest and least sophisticated sources of equity for a new business. Just don’t be surprised if you have to look elsewhere for financial help for small businesses.
