This is the first post in a 5 part series. Check out Part 2, Part 3, Part 4, & Part 5
Why Give a Damn:
$30 Trillion.
That number represents what Americans have in long-term investments. Here is the average annual return on investment (historically) for several classes of long-term investment:
- Savings Accounts: 6%
- Stock Market: 9%
- Angel Investments: 27%
What this means is: if you were to invest $10,000 in Year 1, and reinvest all of your returns, then by Year 20 your nest egg would have grown to:
- $32,000 (Savings Accounts)
- $56,000 (Stock Market)
- $1,200,000 (Angel Investments)
So what percentage of that $30 Trillion in long-term capital are held in angel investments?
Zero.
Why? Because for the last 80 years it’s been illegal for entrepreneurs to publicly solicit investment in their company. Just by posting the fact that you are raising money to your Facebook page, you could be facing jail time. So as a result, 90% of startup capital is currently provided by dipping into personal savings, credit cards, and hitting up friends and family.
But in 2012, an historic piece of legislation was passed that will have a profound effect on the global economy over time. In short, the JOBS Act enables you to crowdfund investment in your company, in the same manner you currently crowdfund donations to your creative project on Kickstarter.
Why is this a revolution in the making? It comes down to four major trends which are accelerated by crowdfund investing:
- The power shift from professional investors to entrepreneurs and citizen-investors
- The democratization of wealth creation through angel investing
- The rise of for-profit social enterprise and impact investing
- The rise of Personal Investment Contracts
I will address each of these dynamics in a separate post. But for the moment, here are some fun facts to chew on!
- If just 2% of the $30 Trillion in U.S. long-term investment capital were placed into startups, it would be ten times greater than the amount angels and VCs invest annually.
- That same 2% would equal 100% of small business bank loans outstanding today in the U.S.
- 80% of the pentamillionaires (>$5M in net worth) in the U.S. are entrepreneurs who sold their business
And here’s a short video that explains how they did it.
Unreasonable Challenge
If you’ve raised money for your company before, tell us how you did it in the comments below. If you are thinking of raising money, what’s your plan?
I am Senior Vice President of Business Development at Crowdfunder, a leading investment crowdfunding portal. I’m also an angel investor, advisor and friend to many of the people and companies I mention by name. If you’re interested in learning more about my world or want to connect, please visit http://www.rafefurst.com