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