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
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.