Dude, where is my Startup ?
In 1976, when Steve Jobs recruited Steve Wozniak to start Apple, it was common in Silicon Valley to have two or more co-founders in a tech company. Entrepreneurship was tearing apart the old corporate structure and allowing thousands of companies to flourish in a new era of personal technology. The venture capital industry was the backbone of this explosion in new companies and contributed to the success of what we know today as Silicon Valley.
But what about today ?
According to the Kauffman Foundation, who uses census bureau statistics, the number of new startups per year has been slowing down since 1982. This is an alarming trend, given that startups, from all industries, are the largest contributors to new job development.
In order to be a society where people can pursue their dreams and achieve happiness, we need to offer freedom as an unyielding rock at the heart of our economy. This in turn will encourage people to become creative and build new businesses. In the last 200 years, we have achieved a great deal of wealth creation for our Nation, including building the largest middle class any society has seen in the history of mankind. The United States experiment has worked beyond anyone’s imagination. To move forward we need to help entrepreneurs start and build new businesses. These new startups will create high paying jobs with equity and allow our disaffected and dissatisfied middle class to flourish again.
What needs to be done ?
Since the Great Recession the number of startups has declined, and although we are celebrating entrepreneurial heroes such as Mark Zuckerberg, we need to encourage others who find it difficult to start a new business because of the lack of capital availability.
Where is the “money” ?
Typically, the money is found among wealthy investors who are sometimes called Angels and are willing to put their hard earned money at risk. They are hard to find unless you know a lot of wealthy people and they have been frustrated recently by the lack of companies going public or being sold, thus offering them a clear path to liquidity. The other group are the professional investors, Venture Capitalists (VCs) and Private Equity investors. They earn money by investing capital and they pick startups they believe will be successful. Let’s be mindful that VCs never invest unless they are introduced to a founder by someone they trust. They also only invest 5% of their capital in startups led by women and 1% in startups led by minorities. Who is counting ?
The people strike back
However depressing it may be to read that capital is hard to get, especially if you are on the wrong side of the bias, founders now have a viable alternative. It is called equity crowdfunding. This may sound like another industry buzzword, but this time it actually delivers something useful for entrepreneurs: fresh capital. For the first time in 80 years, consumers can invest in the startups they care about, take a gamble with their hard earned money, and help a company become successful. After all, capital is hard to find and, in most cases, necessary for the success of a startup. Companies can raise up to $50M per year with the new Regulation A+ rule that went live on June 19th 2015. This rule requires the company to get a 2 year audit (less if the company is more recent) and file form 1A with the SEC and wait for their review (which can take 4 to 8 weeks). The most recent rule called Regulation Crowdfunding is different. Companies can raise up to $1M without an audit and if it is their first time raising capital under this rule can just file a simple Form C with the SEC with no review required. In 21 days or more, a company can raise up to $1M.
OK, you had me on the word “capital”, now what ?
Many platforms are available to allow entrepreneurs to raise the capital they need. StartEngine, of which I am the co-founder and Executive Chairman, is one of the largest of the platforms. Last January, we hosted Elio Motors on our technology platform and they raised $17M from 6,600 investors. This was, by far, the largest equity crowdfunding campaign ever. We are proud of their achievement and we have set a larger and bolder goal: Host 5,000 companies on our platform in 5 years and watch these startups create 1M+ jobs.
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The views and opinions expressed in this article are those of author Howard Marks. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:https://www.startengine.com/assets/Disclaimer.pdf
