13. How New Ventures Get Funded: From Savings to Venture Capital
After this lesson you can
- Describe how most new ventures are funded and how rare venture capital is
- Match funding sources to the four venture types by what they ask in control, repayment, reporting and ownership
- Explain valuation, dilution, convertible instruments, liquidation preference and board seats as concepts
- Explain why offering investments is regulated almost everywhere and why informal public offers are risky
- Evaluate an accelerator or competition with a four-part checklist
- Describe research on bias in early-stage funding and on microcredit's modest effects
Video coming soon
Videos are planned to publish from December 2026.
A lesson on where money for each venture type actually comes from and what each source asks in return. It explains equity concepts and why raising money is regulated, without recommending any investment, platform or instrument.
Questions and answers
Questions a learner would ask about this lesson. Think through your own answer before you open each one.
- Do real startups have to raise venture capital?
Show answer
No. The lesson says founders' own savings start most ventures, customer payments fund many more, family and friends often help early, and loans usually come later, if at all. Census data analyzed by Puri and Zarutskie show venture-backed firms are a tiny share of new firms in one country. Venture capital suits ventures where staged tests can reveal large value, and fits poorly when the goal is steady, owner-controlled income.
- What does every funding source ask of a founder?
Show answer
The lesson uses four questions: control (who decides?), repayment (must it be paid back?), reporting (what must you report?) and ownership (does part of the venture leave?). Non-dilutive money, such as grants, prizes or customer revenue, involves giving up no ownership, but grants can still carry restricted use, milestones and reports.
- What equity concepts should a founder understand?
Show answer
Pre-money valuation is the agreed value just before new investment, and post-money is that value plus the investment. Dilution is the fall in existing owners' percentage when new shares are issued. Convertible instruments turn into ownership later, and a liquidation preference lets certain investors be paid first when a company is sold or closed. The lesson explains these as concepts only and points to specialized counsel.
- Why is raising money regulated?
Show answer
Because of information asymmetry: founders know much more than investors about what is being offered. Rules almost everywhere require disclosure or limit offers, exemptions usually limit who may be offered investments, and informal public offers can break the rules. The course never recommends an investment, platform, instrument or valuation.
- How can I tell whether an accelerator is worth it?
Show answer
The lesson's checklist looks at training (what is taught, by whom, how often), mentors (who, and how matched), alumni (what past participants report) and terms (what the program asks in return). Warning signs include a vague curriculum, mentors with no committed time, no way to contact alumni, and fees, unclear milestones or requests for IP. In the Start-Up Chile study, gains came from schooling bundled with services, not basic services alone.
Practice quiz
- Question 1Using census data, Puri and Zarutskie found venture-capital-backed firms are:
- Question 2The Start-Up Chile study found that performance improved when:
- Question 3What research design did the Start-Up Chile study use?
- Question 4Dilution means:
- Question 5Founder C considers inviting families they serve to buy ownership shares through a public social media post. The key concept the course raises is:
- Question 6Ewens and Townsend found that male early-stage investors on one platform:
- Question 7Which funding approach builds a venture with the founders' own resources and early customer revenue, without outside investors?
- Question 8In the microcredit study by Banerjee and colleagues, a randomized rollout across 52 neighborhoods found:
- Question 9A right that lets certain investors receive money back first when a company is sold or closed is a:
- Question 10Which source of money combines grants, donations, earned income and investment expecting a social return?
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Entrepreneurship for Graduate Students is education, not legal, tax, financial, or immigration advice. Bring questions about your own situation to your university technology transfer office, a licensed professional, or the right campus office.