A common misconception among early-stage founders is that venture capital (VC) is the primary source of funding for startups. The reality, however, tells a very different story.
While VCs often dominate the headlines, their actual contribution at the seed stage is far smaller than most people assume. In the U.S., traditional venture capital firms fund only about 400 to 600 seed or startup companies per year.
Angel Investors Fund 27x More Startups
In contrast, angel investors fund approximately 16,000 seed or startup-stage companies annually in the United States. That’s nearly 27 times more than venture capital firms.
This massive funding gap has been backed by multiple studies and sources over the past two decades—including data from the Federal Reserve, National Science Foundation, and the Center for Venture Research (CVR).
The Research Behind the Numbers
Economist Scott Shane, professor at Case Western Reserve University, dives deep into these trends in his book Fool’s Gold—a research-driven critique of the myths surrounding early-stage financing.
Drawing on data from the National Science Foundation, Shane highlights that in 2004, VCs funded 612 seed or startup companies, or roughly 23.7% of their total deals. That trend was echoed by the PwC MoneyTree Report, which reported only 424 VC-backed seed/startup investments in 2007.
In contrast, the Federal Reserve’s 2003 Survey of Small Business Finances estimated that angels funded about 50,700 companies that year. The CVR recorded similar numbers, reporting 55,480 angel-funded ventures in 2008.
Pre-Revenue Companies: A Strong Indicator
Angel investors also tend to back earlier-stage companies. Shane references data from the Entrepreneurship in the United States Assessment study, which notes that 35.5% of angel investments go into pre-revenue companies. If we take that figure as a proxy for seed or startup-stage deals, the math holds up:
- 35.5% of 50,000 = ~16,000 startup-stage investments by angels per year
- VC investments at this stage: ~600 annually
- Ratio: 27 to 1
In personal correspondence, Shane confirmed:
“I think that 27:1 is about right for the ratio of angel to VC seed and startup stage investments.”
Why This Matters for Entrepreneurs
This is not just a trivia point—it’s a strategic insight for founders seeking funding.
With VCs funding less than 5% of seed-stage companies, the myth of VC as the gatekeeper to startup capital is misleading at best, and harmful at worst. The decline of traditional venture capital doesn’t spell doom for early-stage innovation—in fact, it’s angels who are quietly powering the next wave of economic growth.
The Takeaway for Angels and Founders
The data is clear: angel investors are the backbone of early-stage innovation in America. They’re not only funding more startups—they’re funding them earlier, often when there’s no revenue, no product, and only the vision.
In a world where the VC model is being reexamined and even questioned, angel capital has proven to be resilient, adaptable, and essential.
If you’re an entrepreneur seeking your first check—or an investor deciding where to place your next bet—remember this:
The future of startups isn’t VC. It’s you.