I met with Paul on Tuesday. He is the CFO of a business start-up. He’s not sure if the next phase of his company’s financing is going to go through. Although he believes in the business model and the mission of the company, some days he thinks he won’t have a job in three weeks. I met with David on Wednesday. While he’s a great saver and earns a how To Invest Small Capital buck, he isn’t wealthy.
Because of the way small business investing is structured in this country, the likelihood of Paul and David connecting has been infinitesimally small. It’s not just these two who are missing out. Because small companies drive job and economic growth, the economy of the country loses when Paul and David don’t connect. And because the current system of funding is biased, some small businesses are a lot less likely to get funding despite their worthy ideas. Recent developments could change all this. To raise their initial start up money, small business owners typically first use their savings, and then appeal to their friends and family.
If they get big enough and have certain ambitions and contacts, they can get venture capital funding or private equity funding, which is what Paul was waiting on. These sources of capital are all enhanced if you are affluent and well connected. Do your friends and family have extra money to invest in your business? Do you know anyone you can talk to at a bank? What about impressing people in the venture capital world?
How To Invest Small Capital
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A lot of people with good ideas are shut out. Raising money got a lot easier. With reward sites, startups with good ideas raise money in exchange for rewards. The reward here was a chance to order the device. The reward for funding Lammily was the chance to pre-order the doll, and sticker packs with stretch marks, cellulite, freckles, and boo-boos.
The reward sites show that companies can raise large amounts of money through small contributions from a large number of people. Reward sites cater to consumers who love new products and want to support new ideas. You may get first dibs on a cool new doll, but sending money to a reward site isn’t investing. Accredited investor regulations were set up in in the wake of the 1929 crash, when a lot of people got ripped off because they invested in dubious enterprises. The idea was that people with a high level of wealth are sophisticated enough to understand investment risk. Unfortunately, this leaves the Davids of the world — investors who are sophisticated but wealthy — shut out of these types of investments.