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.
Noted financial analyst Michael Markowski, who predicted the demise of Lehman Brothers, Bear Stearns, and Merrill Lynch, is predicting that the current S&P 500 stock market bubble is poised to crash in 2018.
One of the factors cited by Mr. Markowski is the significant divergence between large cap stock valuations and small cap stock valuations.
If such a crash occurs, it could be a good opportunity for investing in microcap companies since investors will be seeking investment opportunities other than the S&P 500.