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When many people think of how the business sector relates to startup companies and the venture funding that invests in them, the perception is that this part of the economy is irrelevant and doesn’t impact the average person’s life.
But a deeper look tells a much different story, one that actually touches all of us in various and important ways, ranging from added employment opportunities to the way we live our lives to the quality of the lives we lead — and, in fact, even to how long we’ll likely live our lives.
One could strongly argue that angel and venture capitalist investors, as a result of their investment choices — from particular economic sectors to the individual companies they choose to invest in — make a significant impact in shaping the future of the lives we’ll lead.
As it stands, small businesses in America drive roughly half of the national GDP, create 75% of all new jobs and represent 99% of all employers. Driving the formation and growth of a significant percentage of new company startups, arguably those that touch our lives most broadly, are the angel and venture funding fueling them.
How important is angel funding to the startup ecosystem? Well, angel investors provide as much as 90% of outside funding for startups — $25 billion to 70,000 companies annually. In addition, angels are more diverse than venture capitalists. For example, nearly two-thirds of the total investment angel investors provide — 63% — is invested in areas outside of major cities, 22% of all angel investors are women, and new angel groups such as the Ark Angel Fund, consisting of members from the Chaldean American Chamber of Commerce in Farmington Hills, and Detroit-based Commune Angels, a group founded by five Black professionals whose charter is designed with inclusive principles, ensure there’s ample diversity among those doing the investing and those receiving it.
Angel funding is typically the earliest form of equity funding, and it supports nearly 20 times the number of startups versus other forms of equity funding — each with an increased probability of survival, improved performance, and annual growth of 30% to 50%, on average, based on a study by Harvard and MIT researchers.
Related: From Our Founder: New Legislation Makes Equity Crowdfunding the Go-To Source for Startup Funding
And following the momentum created by angel funding at the startup and seed stages, venture capital is the critical funding that drives the growth of these startups as they mature. How significant is venture capital funding? Consider in 2018, a total of $254 billion was invested globally into approximately 18,000 startups. In the same year, out of the 10 most valuable companies in the world, seven were startups that had humble beginnings funded by venture capital.
They include Apple, Amazon, Google, Microsoft and Facebook, for example. In fact, according to a study conducted by Stanford University, public companies in the United States with venture capital backing employ around 4 million people and account for one-fifth of the total market capitalization of all public companies.
All of this activity is instrumental in creating a vibrant culture in which young people can dream and endeavor with confidence in the pursuit of breakthrough ideas with passion. And that energizes a region that, in turn, attracts other like-minded people. Locally, think of the changes we’ve seen in Detroit as a result of Dan Gilbert’s vision, in which he made it a priority to foster the startup ecosystem as a central way to attract and retain young talent.
And much like the effect HP had on fueling Silicon Valley’s early culture, similarly think of how the Ann Arbor community has become a hub for innovation in our region as a result of the success of funds like Jan Garfinkle’s Arboretum Ventures and that of companies like Dug Song’s Duo Security. There is real momentum now in the Ann Arbor startup scene, which now claims 38% of the total of venture-backed companies in Michigan, which in total have raised nearly $1 billion in venture capital funding, according to EntryPoint’s 2020 Ann Arbor Entrepreneurial Ecosystem Report.
So while it’s true most of us will never be active participants in angel or venture capital investing, or likely become a founder of a leading fast growth startup, the next time you access the internet, consider all of the amazing services wouldn’t be possible without bold investors taking big risks that ultimately lead to the innovations that shape the way we live.
Originally published on DBusiness.com.