Early Stage Investments For Politicians
Finland will have its parliamentary elections this spring, and Estonia just had theirs. I've come across quite a few candidates and politicians who don't fully understand the importance of early stage investments, call it angel investing or whatever you will, for the startup ecosystem and the economy itself. Some go even as far as stating, why should we give benefits to a certain group of business people and not everyone else? I've thought about this for a long time and I believe I've come across the most simple way to put the message across in a way that politicians would understand and respect the importance of it.
Politicians love talking about employment figures. I believe the importance of early stage investing for politicians can be explained through them. My statement is that a functional seed investment market will enable startups to twist the laws of economics in such a way that they're able to employ people without any revenues. A functional early stage investment market will enable startups to hire more people for companies that don't yet have revenues. Companies would be using private investors' money to keep people off unemployment benefits.
It would be an interesting study to conduct; how many people are employed through venture capital in Silicon Valley in companies that wouldn't be able to hire the people otherwise? My guess is that it's quite many.
This is basically, if you put it this way, employment money from private investors to keep people at their jobs - without any tax payer money. It's a bit of a twisted way to look at it and naturally this isn't the end goal that the investments are for, but I believe it's a great side product of investing into companies and helping them grow. Naturally, this won't solve the whole unemployment crisis, but with little changes to the current policies we would be able to achieve a lot.
Early stage investments are of crucial importance to a functional startup ecosystem. It should be every political party's goal to enable more of them through changes to policies regarding them. There's certainly a need for change in this matter.
Image by doctor paradox.
Antti, I couldn't agree more. Here is a part of my essay when I was 'researching' the matter:
"According to a recent Kaufmann Foundation Study, in U.S job creation and growth, start-up companies aren’t everything. They’re actually the only thing. According to the study, companies of all sizes constantly create and destroy jobs. However, in the long run, the study reveals both on average and for all but seven years between 1977 and 2005, existing firms are net job destroyers, losing 1 million jobs net combined per year. By contrast, in their first year, new firms add an average of 3 million jobs. (Job Growth Driven By Startups, 2010)
Venture capital investments are a straight investment to scale up businesses and thus increase the companies’ personnel. Naturally this affects the employment rates on a national level as well. Besides the shortcomings of the early stage financing in the current financial system, job creation is another very important reason for the VC industry’s existence. Through the job creation aspect, it is clear why every vibrant ecosystem has a crying need for value-added venture capital financing."
Olli fantastic comment and a great quote from your essay.
Like I mentioned in the post, I don't really have any numbers to back this up immediately, but I think you just confirmed me right. Thanks!