QuasiPreneur.comA Good Place to Be an Entrepreneur
A Good Place to Be an Entrepreneur
California continues
improving its business environment by focusing on entrepreneurial
concerns and what the state can do to help.
As a native Californian, if it weren’t for my extensive travels
around the country and the world, I would never appreciate how
truly special the environment here is for entrepreneurs. Adding to
my appreciation is the nature of my business–assisting
entrepreneurs in finding the best route to their success.
I was especially impressed when I learned that the California
Legislature was asking leaders in the community for their input on
making the entrepreneurial environment even better. In addition to
selecting me to join this august body, they also recruited senior
members of several VC firms, investment banks and commercial banks,
and the major pension funds, whose dollars play a part in
supporting more than 300 VC firms, as well as professors from some
of the leading universities promoting entrepreneurism.
The initial objectives of the group were listed as:
- Assisting communities in becoming investment ready;
- Expanding debt instruments to serve the business development
needs of emerging domestic markets; - Using public money to reduce community development risks in
emerging domestic markets; and - Innovating private equity investment products in emerging
domestic markets.
Since September, the group has met once in person and had two
two-hour long conference calls. Collectively, it has decided to
focus on the following three priorities:
- Enhance the financial literacy of and technical assistance
available to entrepreneurs seeking debt and equity capital. In
other words, focus on developing programs that help entrepreneurs
better understand: how much money they might need to grow their
company to the next level; and where to get that money. - Develop one or more models for deploying private equity funding
in early stage companies, including blending public and private
resources to meet risk-adjusted return requirements. Here the focus
would be on: developing a method to screen entrepreneurs to
determine which ones are ready for funding and which ones still
need help to qualify for funding; and providing systems and
incentives to combine both public and private investment funds to
increase their reach and effectiveness in helping
entrepreneurs. - Establish common definitions and criteria for use by investors
in emerging domestic markets. For example, many entrepreneurs don’t
understand, much less appreciate, many of the terms used by the
professionals that will decide their fate. These terms include:
"cap table," a chart that provides an investor with detailed
information about who owns or has claim to every share of stock in
the company; and "equity," which refers to a form of ownership in
the company where money is exchanged for stock based on a unit of
value that has been pre-agreed to by both parties.
Currently, there is no one place entrepreneurs can go to get
this type of information in either the quantity or quality they
need.
If you’d like to know more about this ongoing effort of the
Advisory Group, including a list of members, you can go to the
website for the California State Assembly Committee on Jobs,
Economic Development, and the Economy.
So what does this committee hope to accomplish? Since I know
there is usually a general amount of skepticism about what
government can do, let me emphasize some of the common concerns
driving this effort:
- In the past 10 years, there has been a renewed interest by
institutional investors in identifying businesses and real estate
opportunities in emerging domestic markets. This growth in investor
interest is driven, in part, by the recognition that changing
demographics in the U.S have resulted in a significant increase in
minority purchasing power and business development by
minority-owned firms. - The IRS predicts that Latinos will soon own 10 percent of
businesses. Overall growth rates in the number of minority-owned
businesses are three to four times higher than for white-owned
businesses. - Small businesses provide approximately 75 percent of net new
jobs in the nation. In California, small businesses comprise more
than 98 percent of all businesses, and businesses with less than
five employees make up more than 88 percent of all businesses in
the state. - Despite their growth, emerging domestic markets’ ability to
grow is constrained by their access to capital. Even after
accounting for a variety of factors, such as education, experience,
industry and location, EDM firms receive less capital and on less
advantageous terms. Latinos and blacks are turned down for business
loans at 3 times the rate of whites with equivalent credit
characteristics. - In 2006, private equity venture funds raised $130 billion;
approximately $25.5 billion was invested in 3,416 deals. The
composition of EDM venture portfolios differs from mainstream
portfolios. EDM venture portfolios are typically comprised of
retailers, financial and business service entities, makers and
distributors of consumer products, and computer software
companies. These types of companies comprise only 10 percent
of mainstream venture capital investments. - Although women own approximately 40 percent of all businesses
in the U.S., they receive less than five percent of all venture
capital. - Minority owners comprise 8 percent of all owner firms, with
Hispanics owning close to 4 percent. However, minority-owned
firms receive less than 2 percent of venture capital. - Rural entrepreneurs account for 10 percent of all businesses
but receive less than 2 percent of all venture capital.
Thus, the motivation lies in recognizing that the economic base
of California is changing and that the financial community needs to
make the appropriate adjustments. California’s leadership and
reputation for fostering entrepreneurism will be threatened if we
don’t adjust to these changes and learn how to better improve our
mechanisms for finding, helping and funding the best and brightest
ideas in our state–regardless of their source.
Jim Casparie is the "Raising Money"
coach at Entrepreneur.com and the founder and CEO
ofThe Venture Alliance, a national firm
based in Irvine, California, that’s dedicated to getting companies
funded.
