Entrepreneurship, Second Edition

9.2. Entrepreneurs and Informal Investors

Self-funding by entrepreneurs, along with funding from informal investors, is the lifeblood of an entrepreneurial society. Founders and informal investors are sometimes referred to as the Four Fs: founders, family, friends, and foolhardy investors. One of the most noteworthy findings of the Global Entrepreneurship Monitor (GEM) studies is the amount and extent of funding by the Four Fs. The prevalence rate of informal investors among the adult population of all the GEM nations combined is 3.6%, and the total sum of money they provide to fund entrepreneurship is equal to 1.2% of the combined gross domestic product (GDP) of those nations. The entrepreneurs themselves provide 65.8% of the startup capital for their new ventures; assuming that the remainder of the funding comes from informal investors, the funding from entrepreneurs and informal investors combined amounts to 3.5% of the GDP of all the GEM nations.

The informal investor prevalence rate among the GEM nations participating in the 2009 study is shown in Figure 9.3. Among the G7 nations, the United States and France have the highest prevalence rates (both 3.8%), and the United Kingdom has the lowest (1.1%). The annual amount of funding provided by informal investors as a percentage of the GDP of the GEM 2009 nations is shown in Figure 9.4. The total amount of funding is the product of the number of informal investors and the average amount that each investor provides annually. A ...