think fast

New businesses and venture capital.

Question 4.0 (2/8/2011):venture capital

Economists estimate that there were 27.5 million businesses in the United States in 2009. How many of these businesses received first-time funding from a venture capital firm?

The answer was A: 728.

According to the National Venture Capital Association, 728 companies received venture capital financing for the first time in 2009.

Very few of the 27.5 million businesses in the United States is appropriate for venture capital investment. Venture capitalists are interested in funding super-high growth companies (ones that can reach $100 million in sales in five to seven years after founding) that the founders are willing to have acquired or go public within a similar time period.

To achieve this level of growth, businesses usually need to operate in high-growth industries and have clear, observable competitive advantages, such as patented technology. Few businesses have these characteristics. Almost four-fifths of U.S. businesses have no employees, and of those that do, less than 10 percent ever see growth in employment or sales. Most businesses operate in mundane, low-growth industries that venture capitalists do not like; and most business owners do not want their businesses to exit through an initial public offering or acquisition.

Question courtesy of Scott Shane, PhD, A. Malachi Mixon III Professor of Entrepreneurial Studies and professor economics. Shane is a columnist for BusinessWeek and author of numerous books, including Born Entrepreneurs, Born Leaders, in which Shane says the tendency toward entrepreneurship is influenced by genetic factors. Listen to an interview with Shane about the link between genes and leadership.


Week Four Stats

How did you do? 197 people submitted answers for Question 4.0, 15 contestants selected the correct answer. Average time to correctly answer: 35.8 seconds. Fastest time? Eleven seconds. Check out last week's top 10 players or visit the leaderboard totals for January.

Take a shot at the next question, will be posted on Tuesday, April 26, 2011. See other past questions and answers.