Easier Angel Investing for Job Creation
- by Bruce Blechman
It is well publicized that the major stumbling block for most entrepreneurs to expand and create jobs is lack of risk capital. Risk capital is defined as capital that is not any of the following:
1. Protected by any collateral or government guarantee that can force bankruptcy or offer control to a debtor
2. Offered by any bank or lending institution
3. Paid back in fixed payments, like interest that is not aligned with the performance of a business
4. Related to any professional venture group or institutional fund or private-equity fund (they take very little risks these days)
5. Coming from any friend or relative of the entrepreneur’s management team (not really available anymore under today’s conditions)
Risk capital is only available from accredited or nonaccredited individuals commonly referred to as “angels” (high-net-worth individuals, usually accredited investors).
In short, risk capital for the entrepreneur is capital obtained from outright strangers or groups of strangers who are willing to risk their own capital based solely on the merits of the potential business and its ability to earn a substantial return on their investment, rather than their relationship to the entrepreneur or by the entrepreneur putting up assets as collateral for obtaining some sort of loan.
Angels are hard to identify and communicate with and are very cautious about investing their own capital. Still, they number in the millions, and few, if any, are ever approached by an entrepreneur.
Why aren’t entrepreneurs contacting these angels? Certainly, we all want to invest in “the next best thing.” No wonder the TV show Shark Tank has gotten popular. However, the government has created too many obstacles, making it difficult for the entrepreneur to even talk to an angel. Plenty of risk capital investors exist, but no real way exists for them to invest in entrepreneurs’ fledgling products without breaking security laws. Ask any entrepreneur’s lawyer about the rules and regulations regarding raising risk capital, and you will see for yourself the difficulty entrepreneurs face in raising capital.
While this blog is not going to discuss the details of all the obstacles, I am asking for action. Angel investors and entrepreneurs alike should tell policymakers that their regulations are standing in the way of job creation. If policymakers solve the problem of raising risk capital, it will solve the current job problem.
Editor’s Note: The Wharton Alumni Club of New York has taken steps to ensure that angel investors and entrepreneurs are in communication. For more information on this program, please visithttp://www.whartonny.com/article.html?aid=1022.