What about ACCESS to wealth building exits for individuals and families?
1st, thank you to CED for providing me permission to use various screenshots from their report. Show them some love and download the full version. There’s no cost. You just agree to get some awesome updates from them on what’s happening within the founder community in NC. They have not endorsed my post or linked statements. These are my thoughts.
The CED Innovators Report just came out. Over $3.4B ($3,400,000,000) was invested in 187 unique North Carolina private (pre-IPO / pre-stock market) companies in 2020, primarily from institutions and larger funders outside of North Carolina.
If and when these companies have an event where investors are paid, a good majority of those returns will end up OUTSIDE North Carolina, meaning less economic (re)investment capital within the local citizens who are most ‘invested’ in North Carolina.
Well that sucks… kind of…
I mean, I can’t really blame outside investors for loving the founders in our state. It’s a fantastic region. We’ve always been filled with a community of founders who love building great companies that have global impact!
…and if my fellow founders can’t raise the money they need within the state — well then they feel they have to go outside the state — OR more importantly, if they are expanding to other areas.
How many groups can write a check for >$50M in our area and how many can coordinate the syndication of larger capital requirements for bigger offerings locally?
What is going to happen now that these founders can raise up to $75M from anyone on friendly founder terms?
I’m referring to the rules from May 16, 2016 that were just updated on March 15, 2021. Now founders can seek up to $5M on Reg CF (many already have, even VCs) and $75M on Reg A+ ($50M was the largest raise as of this article and prior to that Knightscope raised $22.9M with $200 mins).
Nationwide, Reg CF & A+ has been used by founders to raise nearly $1B ($1,000,000,000), often with the entry point being $100. Typically ‘friendly founder terms’ are set by the founders for anyone who wants to invest in their startups. Then founders leverage the investor base to act as sales & marketing agents, supply chain partner connectors, and more.
Even cooler yet, these models have created ACCESS for 400K+ people to have opportunity to one of the fastest growing asset classes in the US…the private markets. This access has been what has made the wealthy wealthier. It has nothing to do with rich vs. poor. It has everything to do with ACCESS.
Now everyone has access.
When do investors in high growth startups make money?
Typically at exit. e.g. a startup ends up on the stock market (aka IPO’s).
However, out of 36 exits tracked in the report, only 3 ended up on the stock market. The wealth generated from the other 33 ended up staying within the private markets, a place where still < 97% of Americans have no idea they have access. These 33 startups ended up in combined mergers, acquisitions and buyouts with Strategy Buyers and/or Financial Sponsors. aka other companies.
These exits are great for the startup founders, their advisors, and team. I hope they all remember how hard it was to raise capital and become investors and educate other new individuals in our area about their opportunity to invest local. This helps increase ACCESS to capital and ACCESS to potential returns.
These exits suck for all of those who have been told the lie that the stock market is the only place to put their money via 401(k)’s and IRAs. They never had the opportunity to invest in these private local startups in the 1st place. However, now the playing field is getting more and more level.
Exits in the future are celebrated with a broader community who benefits from them directly. Even traditional VCs like Sequoia Capital are syndicating with other VCs and then providing access for as little as $100 to the VC’s investment upside potential. These returns can be be massive…even 1,000X+ in extreme cases like some of those exits listed in the report from local startup businesses.
Will these new public investment models shift the model in favor of founders and community?
I believe they will. I also believe they will help create better businesses. Data is backing this up. On average companies who complete successful investment crowdfunding rounds are growing 23% YoY according to a 2020 report from Crowdfund Capital Advisors.
Also, unlike ONLY high growth offerings I’ve been discussing above, public investment rounds have made it possible for 250+ industries to raise capital, including the coffee shop or distillery. Investment Crowdfunding doesn’t rely on a one-size-fits-all investment thesis. Revenue generating companies that are highly scalable and can provide potential returns off of profitability are also getting funded. e.g. like growing franchises.
People shop local and now they can invest local. If a community of people wants to pick and choose the businesses they want in their local areas, they can now act as the bank or the angel investor together.
Everything from commercial real estate such as multi-family housing to high tech growth to life science companies who make medicines and treatments for cancer are succeeding with these new public offerings.
So, what will these new models of funding create? You can read my posts to find out more about my vision for the future, but more importantly…
…What do you want to create?
*Disclaimer: This article is for educational purposes ONLY and NOT a solicitation to invest. Investing in startup businesses is risky. Returns aren’t guaranteed, and you could lose your entire investment. Never invest more than you are willing to lose. This article is not meant to provide investment, legal, or tax advice and no party listed is an investment advisor, attorney or tax advisor.