Photo Credit – edisonawards.com
Crowdfunding – I want to like it and support it. I really do. The Securities and Exchange Commission is finally allowing anyone (not just the rich angel investors with their private stash of capital and Venture Capitalists who invest other peoples’ money through funds) to support their favorite entrepreneurs with $2,000 a year or more in exchange for a piece of their business. Finally, we have it – the democratization of capital for startups and small businesses. Anyone can go online and buy an equity position in a small company with an offering. It’s that simple.
What’s next? Will we just set up an account and give our credit card number to our favorite entrepreneur just like we set up our Amazon account? A few clicks later, we own a piece of a small company, and we have contributed to the success of an entrepreneur. Thousands of startups grow in size, their payrolls soar, average Americans are rich with their investments and the U.S. economy hums with another trillion in growth.
Startup Success Rates
So what tempers my enthusiasm toward this new American dream? Here’s an undisputed fact: most startups fail. Most small businesses fail. The trend has never spiked or dipped. About 90 percent of all business fail within the first three to five years. They fail because the founders didn’t understand the market. They fail because another company got there first. They fail because the founding partners couldn’t agree. Some even fail because they didn’t have enough money to “make it.”
The few successful companies that do “make it” and the less than one half of one percent that make it big — you know, like Spanx, Google, Facebook, Twitter, Uber — those are the heroic successes that continue to fuel the entire venture capital industry. I don’t even want to get into all those successful companies that never raise outside capital at all. Ever hear about the Las Vegas gamble that saved UPS in the early days?
I want to be enthusiastic about this new SEC ruling and the access to capital it can create for so many entrepreneurs. I’m never a naysayer, so I want to embrace it. Either this ruling will change the age-old trend of startup failures and give entrepreneurs a piece of the private capital pie or now, even more investors will lose money to enthusiastic entrepreneurs who are no more likely to succeed than before.
I am going to give my favorite entrepreneur another $2,000. Do you think they will take a credit card?