Dodd-Frank’s Negative Impact on Start-Up/Emerging Company Capital Raising – by Ronald Woessner

Dodd-Frank crushed the valuations of start-up/emerging companies, as illuminated in the chart below:

Large Cap vs Microcap Spread
Raising Money in a Post Dodd-Frank World

Typical Sources of investment capital for start-up/emerging companies are:

  • Personal Loans/Credit of Founders – fund 57% of start-ups
  • Friends & Family – fund 38%
  • Venture Capital Funds – fund .05%
  • Angel Investors – fund .91%
  • “JOBS Act Crowd Funding – too new for reliable metrics, although expected to increase

The metrics above reveal that “Personal Loans/Credit” of Founders and “Friends & Family” provide the preponderance of capital for start-up/emerging companies. As these capital sources become “tapped” out, these companies need to attract “investment firm” capital to survive. Subsequent posts will illuminate the reasons why the Dodd-Frank crushed stock valuations have made it virtually impossible for start-up/emerging companies to obtain investment firm capital.