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A Sea Change In The Economy

Bill Wetzell
William Wetzel
Professor of Management Emeritus
Whittemore School of Business and Economics
Director Emeritus
Center for Venture Research University of New Hampshire
Durham, NH

America runs on entrepreneurship and early stage capital. As a nation we have evolved from the heavy industrial asset based economy of the past to a knowledge intensive, entrepreneurial, innovation based economy of the present.

In 1979, the Fortune 500 payroll for heavy industry was at its peak with 16 million jobs. Since that time, this segment has declined and millions of new jobs have been created by high growth entrepreneurial companies. In 1982, the son of John Paul Getty was on the cover of the Forbes special issue on the 400 wealthiest Americans. Inside, 60 percent of the wealth was represented by families like his whose money had been generated by the great industrial giants. In 1997, Bill Gates was on the cover as America's most wealthy individual and 80 percent of the Forbes 400 were like him first generation mega millionaires.

This change in the underlying structure of our economy has significant implications for capital markets. It is increasingly important to have access to and availability of high risk, early stage financing because only a few hundred institutions and venture capital firms invest each year in the nation's new companies, and most investing is in later stage financing for companies that have already made it through the start up phase. On the floor of the NYSE more money changes hands before noon on the first trading day of a new year than VC's invest in an entire year.

Private, individual investors or angels invest approximately the same amount each year in 10 times the number of startup companies. They are the primary source of first round private equity financing for the companies that may become the Fortune 500's of tomorrow.

Successful early stage investors, especially those investing in startups, invest in areas they know something about. They are better able to evaluate the merits and the risks. They are value-added investors. Most entrepreneurs come from technical or marketing backgrounds. Investments require solid business management experience, so successful early stage investors contribute expertise, knowledge and their valuable lessons-learned to mentor and direct the growth of new companies. They, and our entrepreneurs, are why America has the world's most prolific economy.

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