Entrepreneurship as an Asset Class
Wanna get rich? Just become an entrepreneur!
Want the freedom to do whatever you want? Easy! Just become an entrepreneur!
Entrepreneurship is commonly depicted as the bastion of easy success, but the simple reality is that entrepreneurs consistently face a long, painful journey.
Thought leaders might try to condense entrepreneurship to a simple definition or soundbyte. My favorite from Elon Musk. In an interview TechCrunch, he said that being an entrepreneur is like eating glass and staring into the abyss of death.” Doesn’t he make it sound so… cool? It’s no wonder so many people have thrown their hats into the entrepreneurship ring, chasing the lifestyle they see in happy-go-lucky media coverage glosses over the many negatives.
It’s too bad the media doesn’t transmit a different message: entrepreneurship isn’t for everyone. That may sound judgmental and negative, but it’s just like saying that not everyone should be a doctor.
Entrepreneur or not, you still have access to the value created by entrepreneurship. For many years, the one true solution was the stock market. But and like many other industry professionals monitoring the markets, we’ve come to believe the modern IPO ecosystem is broken and is due for an overhaul. Here’s why:
The problem with stocks
Investing in a stock on the day of its IPO can feel like getting in on the ground floor. For the average investor, they’re actually getting in on the 90th floor.
By the time a company reaches IPO stage, it’s gone through a series of funding rounds that sees new investors take home pieces of ownership. Even though people own less of the company, the company is worth more overall.
This cycle continues for years, and by the time the IPO takes place, much of that ground floor value has been sucked up by existing investors. The general public is actually purchasing the shares from previous investors, who generate a massive gain for themselves as they leave the new investors to ride the public company roller coaster.
Of course people can actually generate a return by investing in IPOs. But think about the investors who got in during the earliest stages, when a company was worth almost nothing. Consider Benchmark capital’s investment in Uber. They invested $12 million back 2011. It grew 538 percent, and that investment today is worth an estimated $7 billion.
Unless you’re member of the financial elite with access to this category types of investment (and you have a strong appetite for risk), you’d never get the chance to invest at that level. What’s more,most of these companies aren’t actually generating profit. Their valuations are based on hype. This gets at the difference between startups and businesses.
Businesses versus startups
Let’s use the word “startup” to refer to any Silicon Valley-style company. Startups operate on a model where the short-term objective isn’t profit, but to gain traction, build hype, and raise money.
Investing in startups is tough because a majority of them fail, CB Insights uncovered in a November 2018 report that approximately 70 percent of emergent tech companies fail even if they raise money. If the people who do this for a living have a low rate of success ratio, how the hell are we supposed to do any better?
But entrepreneurship isn’t just about startups. An entrepreneur owns your local pizza shop, for example. Same as the local storage business or marketing agency. These companies don’t move forward on on hype, they survive based on their actual profits.
When the Jobs Act went into effect in 2012, these businesses couldn’t raise money from the general public at all. That’s changed today — while there are still regulations in place, the average business has sufficient regulatory infrastructure to raise capital from the public and give investors the opportunity to invest in an entire new asset class that was never previously available: entrepreneurship.
Security token offerings enable entrepreneurship as an asset class
A security token offering is a blockchain-powered fundraising and investing mechanism that’s gained popularity over the past six months. Don’t worry, you don’t need to understand how it works to understand what it can do for you. Most of us can’t explain how the internet works, but we’re still able to use it. So rather than dive into a heady conversation on how blockchain technology works, let’s just talk about what it can actually do for you as an investor.
Blockchain technology makes it possible to “securitize” practically anything. You can take a physical asset, like real estate or ownership in a local business, and turn it into a digital security that can be bought and sold by anyone, anywhere.
This type of investing used to require lots of paper-pushing and a generally high barrier to entry, but blockchain takes this process digital. There’s no need for middlemen to complete these transactions, and it’s easier than it’s ever been to conduct this kind of investing.
Our vision for the future
As security token offerings grow in popularity, we believe their true power will come from reconceptualizing entrepreneurship as an asset class.
For the first time ever, profitable local businesses have the same opportunity to raise capital that was formerly only available to a select handful of companies.
Instead of investing in a company on IPO day at the 90th floor, after all the value has been sucked out by previous investors, the average investor can now invest in businesses (not startups) that generate true cash flow, have real assets, and demonstrate value on financials instead of hype.
We believe everyone in the world should have access to the value of entrepreneurship whether they run a business or not. That’s why we’re excited about security token offerings — they are the technology to make this a reality.