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Three Things That Hold Back the Industry

This article is written by Munira Hussein, a Contributor Author at Startup Istanbul.

Despite the new developments in the industry, there are some things that are holding it back. The three of the biggest challenges for the industry include:

For all the funds that are organized to invest in the company, there is a limit of only 99 investors that can invest. This means that many other investors and value creators get locked out of the deal, limiting the amount of capital that can be raised for a startup or startups.

Second, advertisement is prohibited and hence several investors miss out on the information since the message only gets across to a limited number of investors within the geographical location or networks.

Finally, you need to be an accredited investor under the US law, in order to invest in startups. This means you have to have a million dollars or more in net worth or earn 20k dollars or more a year in income. This definitely locks out the people with less money that are interested in investing in startups.

 In the future, all these limitations are going away. Wefunder was founded to help everyone who wanted to invest as little as 100 dollars.  People who are not very wealthy will be able to invest. There has been a petition to the US government to lift that particular law on limits to the amount of income per year.  When the law comes out, it will be a bit of challenge to implement at first but it’ll pick up. On the accredited side, 99 limit will fall away.

 There are two types of markets. Private and public markets. Private markets are riskier and most countries have laws on investment. Public markets are not allowed to fall overnight. So the governments are putting more and more rule to make it difficult for private companies to go public. All the wealth creation is available to the wealthy before with the company goes public and this locks out other non-wealthy but willing potential investors.

What happens when you train more founders? The best way to train them is to give them money to go start a business. The conventional wisdom right now is that venture capital cannot scale. This is true because there is limited number of founders to go on and create great companies.

Even when funded, usually they don’t do it the first time. There is a high chance of failure. It happens the second or third time, or even fourth for some companies. Crowd funding can allow for these companies to be funded through and through especially if they have viability promises and the entrepreneur will eventually create value.

 What happens when you train more investors? Investing in startups is different from investing in real estates. The potential of most entrepreneurs is that they are all going to be venture capitalists eventually. But you are also going to help invest other people’s money. We are all going to be able to help and nurture new startups.

27 September 2019

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