The Lumping Problem in Startup Funding

05/18/2015 12:17 pm ET | Updated May 18, 2016

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Startup funding is reaching an all-time high, but there's a problem holding back many entrepreneurs from ever seeing a piece of the action.

For the past decade or so, startup funding has increased, almost predictably, year after year. In fact, 2014 saw the highest amount of venture capital funding since 2001, with $47.3 billion invested. Many are claiming that this is the dawn of a new renaissance for startups and entrepreneurs, since so much more capital is available, but in reality, there's a major problem skewing the data and stifling the potential of countless new businesses.

That $47.3 billion seems like a juicy figure, but it's only split between a little over 3,600 different deals. While 3,600 seems like a lot, it's nothing in comparison to the hundreds of thousands of new businesses that are launched every year. So why is such a large amount of money being restricted to only a handful of startups?

Take a look at Uber, a tech powerhouse that was a relatively small operation just a few years ago. They secured two separate billion-dollar-plus rounds of funding after already having a solid customer base and a strong reputation. Obviously, investors would rather put money into a business with a proven model than one with a risky premise, but such a position takes the "venture" out of "venture capitalism" and leaves the entrepreneurs of riskier, less certain businesses grasping at straws to stay afloat.

The reality of the modern startup market is that while the available startup funding has grown, the possibilities of getting that funding have actually decreased. Unless you have a provable model, an existing history, or a huge base of clients, investors will pass you up in favor of the multi-billion dollar prospects that make up only a tiny percentage of all startups.

There's no easy solution to this problem, but understanding it can temper the expectations of wildly optimistic new entrepreneurs with misplaced notions that venture capital is ripe for the picking. If you want venture capital these days, you need to prove your worth first--and often, that means sinking or swimming by your own hand and your own finances.

Jose Vasquez is a serial entrepreneur and tech enthusiast dedicated to helping startup technology companies get the direction and momentum they need to succeed. As the founder of Build. Brand. Blast., Jose has established a collective resource for tech entrepreneurs to consult when brainstorming, creating, launching, or expanding a new business. Jose is also the founder and CEO of Quez Media Marketing, a marketing firm that combines technology and creativity to help new and growing companies get the results they need.

Jose graduated from Goldman Sachs' 10,000 Small Businesses program. Goldman Sachs is a partner of the What Is Working: Small Businesses section.

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