This article originally appeared on Mashable.
Welcome to the entrepreneurial race. President Obama declared we are now faced with the current generation’s “Sputnik moment.” How America responds to the marching orders for entrepreneurism will impact all of us. Success will require that we recognize the challenges and adapt to the demands. Most of all, it will require that we set our priorities straight, sacrifice and have patience.
To position itself to win the entrepreneurial race in the post-industrial, technologically-centered, global economy, America will have to foster entrepreneurism in ways that won’t produce results overnight. We will have to advance our position around the world in the areas of technology, innovation, education and entrepreneurial spirit. While these have been stated goals of our policy makers for many years, real progress will require real plans and real changes.
Fostering American Entrepreneurism
To fuel our economy, we need effective national policies working in conjunction with entrepreneurism. As a part of its role in this partnership, Washington must take key steps to position the country for success.
Ignite passions. This is job one. A primary benefit of the space race was that it ignited a passion in the country that hasn’t been seen since. It gave young people something to dream about. Quite a few young people became scientists, engineers and computer technicians because they were inspired by the space program. The same could happen with entrepreneurism. The national agenda encouraged us to dream and re-envision our world. The multiplying effect of creating internal motivation can not be overestimated. America needs to get people dreaming again.
Match R&D to innovation and opportunities. Economic growth results from the interaction of innovation and entrepreneurship. The private market simply can’t fund research and development at the level needed to win the entrepreneurial race. The government needs to provide R&D funding. But the private sector is best equipped to pick entrepreneurs. The magic moment occurs when the public and private sectors work in the same direction. Tying funding, innovation and opportunities together to create value is what fuels small businesses and our economy. It is imperative that Washington effectively aligns public R&D investment with innovations and opportunities that can become the commercial industries of tomorrow.
Free up private funding. Funding is a primary deterrent to would-be entrepreneurs and small business growth. If someone doesn’t have the money to pursue an idea or expand their business, they often hit a road block. Rather than offering tax benefits to entrepreneurs, America needs to offer funding opportunities. Ideas and the ability to pursue them spur entrepreneurism, not tax credits.
As Dr. Paul D. Reynolds, one of the leading entrepreneurial academic thought-leaders in the world, recently said to me: “I have yet to meet a business founder that told me their motivation in starting their business was the tax credit. People start businesses because there is demand and they can make money.” To help free up venture funding, Washington should work to redesign lending requirements for individuals and businesses, fund seed capital and start-up pools, and encourage early-stage investments.
Educate entrepreneurs. We need to focus on business and entrepreneurship education, in addition to math and science. As Dr. Larry Plummer, an assistant professor of management and entrepreneurship at the University of Oklahoma, recently said, “The commercialization of an innovation can be more difficult than the technological breakthrough in the first place. Focusing on entrepreneurship in our policies is a recognition of the other half of the story.” We need to do a better job encouraging and educating entrepreneurs across the spectrum. This starts in high school, continues through college, and even includes educational efforts in the business world. Entrepreneurship is a life-long learning process, often accompanied by productive failure along the way. Plummer points out that if we don’t teach these skills, the country could be “frustrated that new businesses are not being started as a result of the R&D investments.”
Recognize the constraints. There are a number of facts that no amount of rhetoric will change. Since supply follows demand, the economy will turn around only after demand increases. Another reality is that technology often takes a long time to develop. Many of the technological breakthroughs of the last century took 20 years or more to become technologies that could be commercialized. Finally, since people don’t start businesses just to hire employees, entrepreneurism is also a relatively slow solution to high unemployment. While jobs from new companies can add up to have a significant impact on unemployment, hiring is not a primary goal for businesses. There are no overnight solutions to our country’s unemployment woes.
Are Washington’s First Steps in the Race Innovative Enough?
Over the past week, the White House has taken the first real steps toward spurring the entrepreneurial race. The Startup America Partnership, announced yesterday, outlines a number of promising initiatives with an impressive list of partners. Most importantly, however, the alliance appears to be based on a strategy of bringing the public and private sectors together in a joint effort to grow entrepreneurism and the economy.
Some of the goals of the partnership are to expand access to capital for high-growth startups, strengthen commercialization of federally-funded research and development, identify and remove unnecessary barriers to high-growth startups, and expand entrepreneurial education and mentoring programs. All of these are long overdue objectives.
The partnership also includes efforts to foster new small businesses. In the past, small startups have often not been given enough meaningful attention by public initiatives. The involvement of the Techstars Network may be a signal that Washington is starting to understand where to focus its efforts to grow the economy. TechStars is an early stage investment program that offers selected entrepreneurs mentoring as well as up to $18,000 in seed funding to help launch a new business. As part of its collaboration with Startup America, TechStars has created a network of 17 independently owned and operated seed-stage accelerators across the U.S. that use a similar model of mentorship-driven investment in entrepreneurs. These types of new initiatives for small businesses are indispensable in the effort to rebuild our economy.
While the Startup America Partnership provides a good start, we can’t stop there. If President Obama intends to lead us on a national exploration of entrepreneurism, he will have to ignite our imaginations and set far-reaching goals that inspire us. Our policy makers will have to balance the recognition that we are living in a new day and age with equally new ideas, policies and support. And they will have to demonstrate an ongoing commitment to overcoming the challenges.
Americans have entered the entrepreneurial race. It is a race to maintain our position as the leading economy around the globe. It is a race for technology, a race for the web, a race for energy, and a race for human interaction. It is a race to innovate. And to “win the future,” Washington will have to be as innovative and dedicated as the entrepreneurs themselves.
This article originally appeared on TechCrunch.
While the economic climate in the United States remains uncertain, economists and pundits alike continue to define our recent fiscal crisis with words like recession, downturn and depression. But labeling America’s current financial woes should not be the focus for Americans as the overall economy struggles to free itself from its malaise. What really matters is how the current circumstances affect you and what they mean to your future.
In his book, The Great Reset, Richard Florida calls periods like the one currently facing the United States “Great Resets.” There have been two such periods before the current one, and both of these earlier downturns changed our culture in profound ways.
We all know the stories of mass unemployment and hardships suffered by American citizens during the Great Depression. But what often becomes lost in these stories is that a reset plays out as a process and not as much as an event. It represents a shift in values, economic tastes and preferences, business structures, and industries. In fact, it is a fundamental change in our culture as a whole. I like to think of it as cleaning out a closet — the world rids itself of old, outdated principles to make way for the new.
Change certainly doesn’t come easy. And these periods are often paved with turmoil. The great resets first refocus people. They bring companies and industries back from years of wandering in the wrong direction. They jar us in ways that open the eyes of the collective nation. Importantly, they also reallocate our resources and time. Much like turning soil, these resets provide fertile ground for new ideas and new ways of doing things. The new systems, values and culture make way for new business leaders and innovations. It is in this cumulative cleansing that we begin to see the one common thread that everyone agrees runs through our country . . . opportunity.
This reset is particularly profound for individuals. And it comes at a time when the tools of commerce are available to everyone. Technological advances now permeate every aspect of our lives, especially in the business world. They empower individuals in ways that directly change the business climate around them. Today, a person’s professional identity is more important than ever. Individual skills, expertise, reputation and authority have become the personal currencies of our economy. And they are the currencies that will lead us into the future.
Technology and the new landscape of enterprise now allow us to take the final strides toward the ideals upon which our country was based. We finally realize the ultimate extension of the founding concepts: the democratization of opportunity.
No longer do background, resources, education, or other former determinants of success control enterprise. Gone is the need to come from the right family, grow up on the right side of the tracks, or have access to the right resources. The opportunities provided by the transformation to an online business landscape, as well as the elimination of many barriers to entry and transaction costs, have left individual strengths, passions and expertise as the only distinguishing factors remaining in an individual’s or business’ success. Who you are as a person, and your expertise and passions, are more important than ever. In fact, they drive your own personal enterprise.
Today, everyone is an Enterprise of One.
In this day and age the next titans of business are more likely to come from your neighborhood than Wall Street. Although this fact alone is enough to inspire would-be business adventurers, another larger story lies beneath the business revolution. It is not as well known, or even completely visible, upon first glance. But those facts belie its importance. In fact, the story beneath today’s business revolution is the future of business and enterprise itself.
It is the story of a new side of entrepreneurism. But, more than that, it is the secret of what lies behind the success of a new breed of entrepreneurs that are turning traditional business and industry models upside down. These new business leaders have strengths, priorities and approaches that are not only different but also at odds with traditional business leaders. You read about them all the time here on TechCrunch. They are more passionate, open and in tune with technology. Through a new set of ideals, they are redefining our world and leading the changes in our culture that will drive our business world for the next 100 years.
These business mavericks live by a new dynamic of success — unique individual strengths, expertise and credibility — fueled by today’s cultural and technological changes. In this new dimension of business lies the secret to success in our transformed world of commerce. Armed with a new viewpoint, and the tools to make a difference, these entrepreneurs run their businesses based on the central principle that once all of the barriers to entry, transaction costs and other hurdles are stripped away by technology and cultural changes, an individual’s strengths and weaknesses are primarily what determine his or her success.
Richard Florida quotes General Electric CEO Jeffrey Immelt, stating that “this economic crisis doesn’t represent a cycle. It represents a reset. It’s an emotional, raw social, economic reset.” Immelt adds that “People who understand that will prosper. Those who don’t will be left behind.”
The new entrepreneurs not only understand this philosophy but are living it. They know that business must be viewed through a new lens. It must be played by a new set of rules: the new rules of entrepreneurism.
This article originally appeared in the Bar Journal in January 1997.
One can’t help but notice the extent to which the Internet has begun to affect our lives, business, and the law. Everything from sports and news, to business and commerce can be found on-line. These technological advancements have also begun to affect the financial and securities industry. For example, in recent years, securities news groups have flourished. These news groups consist of people who communicate on various subjects through electronic mail. While the information transmitted varies in credibility, the groups continue to grow at a rapid pace.
In addition, many financial and securities-related on-line sites have emerged. These sites are locations on the Internet where individuals and businesses can place information for others to view. You can find everything from information on companies and recent Wall Street figures, to various levels of investment advice. Many of these locations are put on-line by individuals. However, a number of reputable securities firms have begun to offer research and trading as well.
With these new opportunities to distribute information, it didn’t take long for small companies to realize that the Internet may provide a tool in obtaining financing. Small companies, unable to attract a traditional underwriting firm, have few opportunities to raise capital. Often, they find that their only means of obtaining needed financing is from friends, family, or small offerings to a limited number of people. The Internet may provide the medium small businesses need since it furnishes an opportunity to reach millions of people at practically no cost.
Early Electronic Securities Activities
In early 1995, the first securities offerings were advertised on-line by a few small companies. These businesses used the Internet to reach potential investors around the world. In addition, many of these businesses offered the delivery of their prospectus electronically. This is particularly cost effective because it allows a prospective investor to view the prospectus on-line, and then download or print it at no cost to the issuing company. These initial on-line offerings met with various degrees of success. However, regardless of their results, the potential was obvious.
It isn’t hard to imagine that these electronic securities activities were beginning to receive attention at the Securities and Exchange Commission (SEC). The 1933 and 1934 Securities Acts broadly govern the advertisement, sale, and distribution of securities1. While the SEC has been open to the use of new technologies in the past, their use generally requires extensive SEC examination2. Additionally, most approved electronic systems operate through regulated entities such as a broker-dealer. In the case of many of the early internet offerings, however, the companies did not have SEC approval, and in most instances, a regulate entity was not involved.
To deal with these uncharted waters, the SEC, in October 1995, distributed an official Release (“October Release”), that provided much of the needed framework for the electronic distribution of securities information3. This release superseded a February 1995, interpretive letter4, and provided procedures and rules for issuing companies to comply with as they explored the Internet’s potential.
Specifically, the October Release furnished rules for when the electronic delivery of information provides sufficient notice to investors, now an investor can be provided with access to information, and what constitutes evidence that electronic delivery has been achieved. The October Release also provided numerous examples to further illuminate the new rules regarding these activities. The examples cover a multitude of issues that are likely to arise with both registered and non-registered offerings. They also deal with such topics as proxy delivery and mutual fund activity on the Internet.
While further guidance will undoubtedly be necessary, the October release is comprehensive enough to help with many of the issues which arise in this area. However, perhaps more important than the actual guidance provided, was the message the October Release sent: the SEC was going to remain open-minded in the face of these emerging technologies. To that end, the Release stated that the SEC realizes that emerging technologies provide many benefits and that these benefits can now be extended to small companies and investors through the internet.
On-line Trading of Small company Stock Emerges
While the issues associated with on-line information delivery were being examined, a number of people were exploring the idea of providing liquidity to investors in small companies through the use of the Internet. Often, small companies find it difficult to complete offerings since their stock is not listed on a securities exchange. Most investors are simply unwilling to risk their capital without a secondary market for the stock. Since on-line communications provides a mechanism to reach millions of potential investors at practically no cost, it was though that perhaps an on-line secondary market could be developed for small companies.
In March 1996, one of the companies that had successfully completed an on-line public offering, deployed such a trading mechanism. The company, Spring Street Brewing, had been founded by an ex-securities lawyer who knew that the success of the company’s future offerings depended on the level of liquidity in the stock. Therefore, the Brewery sought to develop an Internet site to provide its shareholders with this liquidity.
Individuals would post their indications of interest to buy or sell the stock on the brewery’s Internet site. If someone found a trade that they were interested in they simply contacted the individual at the phone number or electronic mail address which was posted. The parties negotiated the transaction themselves, and completed a sales agreement to be sent to the company. The brewery then completed the trade, by exchanging the stock for the funds received.
Not surprisingly, when the trading mechanism came on-line it received a great deal of attention. However, in a matter of days the SEC asked the brewery to suspend its system until they could study it more closely5. Undoubtedly, many though that the SEC;s intervention spelled the end of the Internet trading for small companies. However, only five days later, the SEC indicated through an interpretive letter (“Spring Street Letter”) that they would consider approving the system if certain changes were made6. The most substantial modification necessary was the use of an independent third-party broker or escrow agent to handle investors’ funds and securities. Other requirements included providing information on the risks and lack of liquidity in the stock, recent transaction history information, and notification that any users who simultaneously posted offers to buy and sell may be considered a dealer under the federal securities laws.
Despite the changes required, the letter underscored the SEC’s commitment to working through the multitude of issues presented by electronic securities activities. It also brought a tremendous amount of attention to this emerging area or the securities industry. Spring Street Brewing received so much attention that the founder formed a separate company, applied for broker-dealer registration, and like a number of new firms, began providing consulting to businesses regarding the use of the Internet to obtain financing7. A cottage industry was emerging.
Recent Developments
Since issuing the Spring Street letter, the SEC has made a number of efforts to resolve some of the perplexing issues which face this new area of securities law. In June 1996, the SEC issues a no-action letter to Real Goods Trading Corporation (“Real Goods letter”)8. Real Goods Trading, like Spring Street Brewing, sought to establish an on-line trading system for its shareholders. The Real Goods letter approved the use of the proposed trading mechanism.
Despite the novelty of the Real Goods letter, it provides little guidance to the average small business. Since the company which sought the letter is already listed on the pacific Stock Exchange, it doesn’t represent most small businesses. Therefore, many of the disclosure and liquidity issues associated with small companies that are not listed on a traditional securities exchange are not present with the Real Good system. In addition, the system actually deployed by the company is fairly simple. It doesn’t provide recent trading information, or any assistance for investors wishing to complete a trade. Therefore, it is doubtful that the trading mechanism offers much indication of what can be expected from this new field in the future.
More recently, the SEC provided guidance in the area of on-line securities offerings. In July 1996, IPOnet, a Texas company that designed a system to place offerings by other companies on the Internet, received a favorable no-action letter (“IPOnet letter”)9. The SEC’s response to is important because it allowed IPOnet to place pubic, as well as private, offerings on-lin. While it may seem odd to envision “private” offerings on a public forum such as the Internet, the system met with SEC approval since it places the issuing company’s information behind a password-protected site. All of the viewers must be registered an evaluated with respect to their investing status prior to receiving a password and viewing private offering information.
The IPOnet letter represents the SEC’s first effort to establish guidelines for third-parties to help companies take advantage of the capital opportunities available on-line. Since the letter is a milestone in this emerging field, it is important to note a few key points. First, IPOnet is affiliated with a registered broker-dealer. The IPOnet Letter is written in such a manner that the broker-dealer is liable for the accuracy of offering information placed on-line.
Second, under the IPOnet letter any placement of offerings on-line has to be approved by the National Association of Securities Dealers, which regulated securities broker-dealers. Therefore, the letter underscores the need to involve traditional securities entities in these activities.
Finally, the IPOnet letter indicates that investors are only eligible to participate in offerings that are placed on the IPOnet system after the investor’s registration with IPOnet. Therefore, they cannot participate in offerings that came on-line before their registration. Regardless of the limitations, the IPOnet letter provides some structure for on-line offerings.
Pitfalls and Efforts to Resolve Them.
Although the SEC has made efforts to resolve some of the issues associated with on-line securities activity, many questions remain unanswered. These issues will require a great deal of attention before a set of rules and regulations can be established. Perhaps, the first topic which must be examined is the securities fraud and manipulation possible with these electronic mediums. The characteristics of the Internet are such that it would be nearly impossible to effectively regulate securities information before it is placed on-line. Any policing activities will probably require enforcement only after an infraction has occurred. This brings to mind an interesting problem which faced the SEC: who will regulate on-line trading? The SEC likely does not have the resources to handle the task.
The addition to the Structural problems associated with regulating the Internet, many of the current securities laws are not suited to cope with the technologies available in today’s world. The 1933 and 1934 Securities Acts didn’t contemplate trading markets other that the traditional systems10. Moreover, the traditional markets are, to some extent, self regulating. Therefore, the organizations which control them provide much of the structure necessary for an efficient and legal system. This leaves the SEC with a daunting task to undertake as they learn to work with this technology, and change the laws to accommodate it.
Finally, the individual states will have to make important decisions in this area. Since the Internet has no geographic bounds, information placed on-line potentially reaches individuals in every state. A number of states have begun to announce their policies with regard to these activities. Some have taken the position that registration of the securities in their state is not necessary of the offer clearly indicates that it is not being directed of offered to individuals in that state11. While this policy certainly helps small companies, many states have not adopted such a position. Without state approval, on-line securities activities will continue to be hampered, regardless of the SEC’s position. Therefore, to some extent, the individual states may hold the key to whether this technology is used by small companies to obtain capital financing.
As can be seen, a number of important issues remain to be resolved before we witness a high degree of integration between the securities industry and on-line technologies. Owner, the SEC has demonstrated a commitment to helping in the development of this new medium in a manner which benefits small companies. To this end, the SEC recently held its Annual Government-Business Forum on Small Business Capital Formation. During this forum the use of the Internet in securities transactions was a topic which received a great deal of attention. Many of the perplexing issues facing the SEC and the states were discussed in detail. IN particular, small company disclosures requirements, broker-dealer and other third-party intermediary rules, and state uniformity received a great deal of debate.
In addition to analyzing regulatory changes which need to occur, the SEC has taken a number of steps to prevent fraud and other illegal activities on-line. In a number of instances the SEC has taken action against fraudulent securities activities on the Internet12. Additionally, in July 1996, the SEC began accepting complaints by investors on-line13
. Now anyone who has access to the Internet can file a complaint with the SEC by going to their Internet address at http://www.sec.gov. The SEC also recently began distributing a flyer which provides investors with information on how to avoid securities fraud on-line. From the SEC’s proactive steps, it is clear that they intend to help make on-line securities activities beneficial to small companies, as well as prevent a proliferation of electronic securities fraud.
Conclusion
While certain aspects of the Internet will undoubtedly prove to be more hype than substance, on-line commerce and finance is likely to continue to become a way of life. It seems fairly certain that over the next five to ten years the Internet will become a valuable new tool for small companies seeking to raise capital financing. If the regulatory hurdles can be overcome, and technology continues to develop, one day on-line offerings and trading will undoubtedly become an efficient reality for small businesses.
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1. Securities Act of 1933, as amended, 15. U.S.C.; Securities Act of 1934, as amended, 15 U.S.C.
2. Delta Government Options, SEC Exch. Act Rel. No 27611 (Jan. 12, 1990); The Lattice Network, SEC no-action letter (Sept. 9, 1993); LIMITrader, SEC no-action letter (Oct. 1, 1991).
3. SEC Release No. 33-7233 (Oct. 6, 1995)
4. Brown & Wood, SEC interpretive letter (Feb. 17, 1995)
5. Wall St. J. (Mar. 26, 1996)
6. Spring Street Brewing, SEC no-action letter (Mar. 22, 1996)
7. Digital Trading on Tap, Wallstreet & Technology.
8. Real Goods Trading Corporation, SEC no-action letter (Jun. 24, 1996)
9. IPOnet, SEC no-action letter (Jul. 26, 1996)
10. Securities Act of 1933, as amended, 15 U.S.C.; Securities Act of 1934, as amended, 15 U.S.C.
11. Pennsylvania (CCH Blue Sky Reports 48,684, Sept. 1, 1995)
12. SEC v. Sellin, DC SFla, Case No. 96-6825-CIV-Ungaro (Jul. 25, 1996).
13. Interactive Financial Services (Aug. 15, 1996)