Image: Amur leopard, a critically endangered species. Source: World Wildlife Fund
According to a recent Forbes article, America ranks as the best country for female entrepreneurship. That’s “good.” On the other hand, the “bad” is that companies founded by women entrepreneurs are less likely to be funded by a venture capital firm than the Earth being struck by an asteroid, as I discussed previously in this space.
That’s “not so bad,” though. Women entrepreneurs are not missing out on much by not being funded by venture capital firms => since venture capital firms fund only approximately five of every 10,000 startups in America, according to Entrepreneur.com.
The “worst,” news, however, is that women entrepreneurs will join their male counterparts in struggling to raise capital to keep their businesses alive because of the lack of investment capital for start-up businesses in America as a whole.
This lack of investment capital for US start-up businesses is an endemic problem. Like an invisible chain, it extends across the length and breadth of the US and restrains an entire ecosystem, beginning with startups in a garage, and extending to OTC Markets traded companies, and further extending to smaller-cap publicly listed companies.
Without sufficient capital, these businesses fail.
Predictably, many would-be entrepreneurs decide to keep their day jobs rather than taking the entrepreneurial leap when they see the businesses of their friends, neighbors, or relatives go “out of business” and the often-consequent loss of life savings and the family home.
With this background in mind, you might be thinking that fewer and fewer Americans want to become entrepreneurs today than in previous years. You are correct.
The data demonstrates that entrepreneurship in America is dying. In February of this year, Mr. David Weild IV, “Father of JOBS Act 1.0,” former Vice Chairman of NASDAQ and New York investment banker, gave a presentation at The Yale Club of NYC. The JOBS Act, signed into law by President Obama in 2012, was a great start for the movement to level the playing field for emerging growth companies, but even Mr. Weild will tell you that more needs to be done.
The presentation included a “heat” map, derived from Census Bureau statistics of US business formations by state per capita. The heat map shows business startups by state, per capita, in 2006 versus 2017. In 2006, the map shows much of the US as dark red, connoting high numbers of startups per capita. Disturbingly, in 2017, the map shows much of the US as pale pink, connoting a paucity of startups.
Business Formations within 4 Quarters by State – Per 1,000 People
Source: US Census Bureau
And, while entrepreneurship in America is dying, so are the US public markets according to some. Others say the public markets are inhospitable to smaller cap companies or that the public markets are “broken.” Regardless of the choice of words, the US public capital markets are no longer the envy of the world, as they once were:
(1) 3,500 (40%) of the approximate 8,700 NASDAQ/NYSE trading symbols (mainly smaller-cap issuers) have average daily trading volumes under 50,000 shares per day, and approximately 50% had volumes under 100,000 per day, according to the SEC.
(2) There are approximately 50% fewer public companies today than 20 years ago.
(3) The number of book runners for smaller IPOs (<$100 million in proceeds) has decreased from 162 in 1994 to 31 in 2014.
Americans are struggling. The US public markets are dying. Entrepreneurship is dying. It’s time for Congress or the SEC, or both, to adopt pro-capital formation policies before matters continue to get worse. If not remediated, the US will forfeit its position as the financial capital of the world. And, that would be really, really bad.
More on this topic to follow.
Equities Contributor: Ronald Woessner
Source: Equities News