In the State Of The Union address, President Obama outlined a plan for economic growth, with green jobs as a cornerstone. Saying "the nation that leads the clean energy economy will be the nation that leads the global economy" the president directly mentioned jobs in clean energy and technology no less than six times. And his vision was clear.
In his own words:
"We should start where most new jobs do -- in small businesses, companies that begin when an entrepreneur takes a chance on a dream, or a worker decides it's time she became her own boss. Through sheer grit and determination, these companies have weathered the recession and they're ready to grow."
These are exciting and encouraging words, and for me they're deeply personal. As a founder of The Belgrave Trust, a service that helps individuals and businesses become carbon neutral, I'm just one member of a large and diverse group of technologists, inventors, advocates -- and yes, dreamers -- that make up the community of entrepreneurs dedicated to creating the green companies of the future, and the jobs that go with them.
But as clear as that statement may be, the signals from Washington today are decidedly mixed. Under the umbrella of financial reform, lawmakers are considering sweeping regulation that threatens the very infrastructure that supports and nurtures this community, and turns ideas and fledgling companies into real engines of growth and job creation.
Buried in the 1336 pages of the "Restoring Financial Stability Act" are overlooked provisions that could have devastating consequences not just for nascent green technology companies, but for the entire startup community as a whole.
The two key changes would require small startup companies to register with the SEC and then wait 120 days for the filing to be reviewed, as well as sharply raise the qualifications for those who wish to invest in these enterprises, excluding all but the truly wealthy. In addition, the law rolls back some Federal preemption of securities laws, potentially leading to a state by state patchwork of regulation.
These changes are misguided. America's technological dominance has been a remarkable feat in an increasingly competitive world. Our continued ability to lead the world in innovation is a linchpin of our economy.
The U.S. hardly has a monopoly on scientists or information technology experts, nor engineering and management talent. Yet each year thousands flock from around the world to our shores, and seek out our high tech hubs, places like Silicon Valley, Austin, Boston, Chapel Hill, or New York City.
Why? Well for starters, the U.S has a truly breathtaking competitive advantage as fertile ground for innovative startup companies spanning all facets of technology. From software and the internet -- to greentech and cleantech. At every step of the process an entrepreneur with a great idea or a viable plan can find the infrastructure they need to get off the ground and build world changing companies. And no other nation has a robust angel community to give these entrepreneurs their start.
A large percentage of cleantech companies in the US have found their initial backing among angel investors or other private seed money, with a comparatively small number founded via government grants. Contrary to public impression, clean technology innovation in the US remains a grassroots effort with small teams working informally, even in the proverbial entrepreneur's garage. Couple this with minimal venture investment in the sector, (nearly $6 billion in 2009 in an industry needing around $3 trillion), and nearly no involvement from investment banks and major financial institutions, and it's clear today's cleantech startups are heavily reliant on angel investment. Our company, Belgrave Trust, has been supported by angel investment to date, and our hope is to become a sustainable business through angel investment.
But -- disconcertingly -- with the stroke of a pen, the pending financial reform package threatens to make it nearly impossible for tech and green startups like ours to pass their most crucial and fragile stage of growth. Nearly every city and every sector has a community of "angel" investors who provide crucial capital and support to bridge the gap between an idea or business plan and a viable company ready for institutional investment.
Many of these investors (who typically each provide early stage funds in the range of $25k-$100k) are themselves entrepreneurs who have had previous success, and bring not only funds, but also contacts and expertise. Many consider angel investment their primary occupation, and make ten or more modest investments each year.
This group may not make the headlines like Goldman Sachs or AIG, but it's an organized tradition that goes back decades, and ranges from individuals to formal organizations such as the New York Angels or The Angels Forum in California. The amounts raised are often tiny by the standards of our financial system,but these early boosts provide the crucial resources that enable startups to reach initial targets, create prototypes, find customers, and realize their potential.
Under the new bill the required financial means for investors could suddenly more than double. While there is no hard data as to what percentage of investors will be affected, data from that same government study suggests that as many as 80% of current angels may not qualify.
The bill's other provision, requiring SEC registration and a 120 day waiting period, seems almost totally out of touch with the realities of the fast moving startup world. Consider Hotmail, which opened for business as an total unknown on July 4th, 1996 and was acquired by Microsoft for approximately $400 million just seventeen months later. A three month waiting period for many startup companies might as well be a death sentence.
How fast should innovation take place? How quickly should we channel resources to the inventor of the next breakthrough in renewable energy, greenhouse gas reduction, or clean transportation? Which entrepreneurs "taking a chance on a dream" will find themselves unable to partner with the investment community that's helped drive this country's robust technology infrastructure and made us a world leader? And shouldn't individuals, i.e. angels have the freedom to choose how they invest their own money?
This is not an argument against regulation -- in fact it's overwhelmingly clear that increased financial oversight is needed following a series of crises that spawned a global downturn.
But as we clean let's remember there's a baby in that bath water, and we must insist that our vibrant and world-leading support system for innovators and entrepreneurs isn't tossed out carelessly.
In order for the US to "lead the global economy" our nation depends on it.
Follow Nicholas Baily on Twitter: www.twitter.com/belgravetrust
Clean tech is not like computers. Much more capital is required for clean tech than the process described here.
I own some 20 solar stocks, many of them small, beat-up and underfunded. Companies like ENER, BCON, that are near delisting on the Nasdaq. Fund them, we don't need more small energy companies, we already have lots of them, with lots of different technologies.
We don't need new technology for affordable solar energy. It needs volume, to be a commodity, large-scale manufacturing. All things done best by big companies, who are doing it now, and bringing down costs.
The most successful solar company in the world is FirstSolar. It got $1B funding from one of Sam Walton's heirs. They don't need no stinkin' VCs ...
I also own China solar stocks, and they are doing well now because the Chinese government just passed big subsidies. The Chinese solar companies are big, they are beating our small companies.
I reject the premise of this article, that what America needs is VCs and angel investors.
Why not mutual funds we can all invest in, that provide the same funding to startups? And return the same big rewards?
For that matter, why are IPOs closed to the average investor? We need to democratize our capital, not increase the power of VCs.
EVER is moving jobs from its Mass home to China. Nothing to do with lack of angel capital. The fact is, like cars it pays to make solar panels in the country where they are sold. China upped their subsidies, so US solar companies are building factories in China. So is FirstSolar, a big factory.
If we want jobs here, and we want to make green products here, then install green power here. That's what China is doing. The government, not capitalists.
Why registration with SEC and 120 days for investors, and why qualification - are they assuming that in the main these people are playing with other people's money in these cases?
I can tell you most of the large businesses I deal with now for my employer would be nowhere without the original seed money. If you place restrictions on people wanting to "invest", then they'll take it elsewhere probably as interest from the bank or gambling on the NYSE.
The transformation of America, the place that made everything, into America the place that makes nothing, where paper shuffling and market gambling have replaced manufacture and value continues. Through my entire adult lifetime this restructuring of the economy has continued unabated, regardless of who controls Congress or who sits in the Oval Office. The downside is, that it doesn't take very many people to play the numbers game, so while the economy grows overall, fewer and fewer people are seeing the gains. Low interest rates have now drawn the majority of people into debt, many far beyond their means should interest rates rise (who thinks interest rates will stay this low?) while their employment prospects diminish. Say goodbye to your GM job and say "Welcome to Walmart", because tha'ts where most of you will probably end up working
To the first poster (Mr. Libertarian) I understand your frustration but not your total cynicism. America is not the place that makes nothing. We create information technology, greentech -- which if you can get over buzzwords is technology that is more **efficient** among many other things.
And yes, we still make things like cars and trucks even. Maybe for Honda, and not in Detroit. Then again there are a lot of people in Asia making things designed by Americans for our companies' profit.
The catch -- the reason for writing -- is that there's no rule that says we have to stay on top in this sector. In 1950 we dominated technology. Things like cars, appliances. When they became less cutting edge they were copied, moved overseas.
It seems to me that the next great challenge is to solve our energy problems. Isn't any easier (nor different from) solving transportation problems was.
I'm not a libertarian. I don't assume that government is the problem. I do believe markets are among the most powerful tools we have. And in this case, I see regulation killing a promising way we might lead the next revolution, not shuffle papers, but innovate, solve problems.
It could easily happen somewhere else. I hope it doesn't, and I hope we our part to keep this industry vibrant here in the
The energy to run our vehicles, our homes, our industry, has to come from somewhere. Either from coal, or from hydroelectric, or from nuclear, or solar-thermal, or from oil, and every year, it costs more, it's a very lucrative business that some people think they've got a monopoly on. It's no accident that this country sends 1/2 billion a year overseas for our energy bill, and likewise it's no accident that these countries then have the investment capital to not only take over US businesses, but also to then put them out of business by undercutting them from overseas price-wise. Any way you slice it, it's a crappy situation for average Americans that have to live in an economy that's suddenly just become somebody else's Monopoly board.
"It's no accident that this country sends 1/2 billion a year overseas for our energy bill" ...you are correct that it is no accident. The money is going overseas alright but going to an American company. You don't send money to Saudi Arabia for your oil, you send it to Exxon's offices in Saudi Arabia, where they give the "House of Saud" their cut and pocket the rest. It's not like the Saudi people see any of it.
"countries then have the investment capital to not only take over US businesses, but also to then put them out of business" I disagree. For every business in America taken over by foreign nationals, 20 businesses are shut down or "downsized" by the American owners who just want to shift operations overseas for greater profit.
These changes can destroy the innovation that will create millions of jobs.
Every entrepreneur should notify his or her congressional representatives that they must avoid killing the goose that lays the golden eggs.
But that said, I think the green jobs angle has been especially under reported. Green jobs require green technology, it's not just the next Twitter that's at stake, it could be the next breakthrough in renewables, or carbon sequestration. Those innovations don't all come from giant well funded research labs, quite the contrary in fact.
Historically hedge funds have had a pass on regulation -- specifically the kind of regulations that keep fund managers from taking precautions against risk -- because it's been assumed that once an investor is at a certain level of wealth they are "sophisticated" investors and more to the point are "qualified" to assume high degrees of risk. In short, they can afford to lose it all.
But hedge funds and angel investments are very different. Angels are most often wel versed in the field. The classic angel profile is someone who has had their own startup and has either cashed out or sold their company. So average Joe Angel is very likely to be a tech or greentech entrepreneur who knows the field. They're often starting another company and want to have a hand in promising ventures.
So someone who built a successful business, sold it for $2MM+, and is on to another couldn't invest $25k/$50k in a similar business. They likely don't have income today and despite being under the new bar, clearly are in a position to invest those amounts. They're a lifeblood to young companies -- money matters, but the whole ecosystem of expertise and advice and introductions as well. Shutting them out is madness IMHO.
Section 412 of the draft bill recommends adjusting the accredited investor to for an individual to $2.3 million in net worth or $450,000 plus in annual income. Many accredited investors have lost approximately 20% of their net worth and innovative startups are having an increasingly difficult time raising equity capital, decreasing the potential pool of angel investors is counterproductive.
Section 926 would require for the first time, companies seeking angel investment to make a filing with the Securities and Exchange Commission, which would have 120 days to review it. This would both raise the cost of seeking angels and delay the ability of companies to benefit from their funding.
Section 928 would repeal the existing federal preemption of state regulation over “accredited investor” securities offerings. This would end the uniform, national set of rules for financing startups. By eliminating regulation that is working well, the bill would expose technology startups to a complicated system of patchwork state‐by‐state regulation, resulting in higher costs, more legal risks, and the potential of not being able to raise capital because of differing rules in different states. Nothing would be gained: no additional protections would be provided to the accredited angel investors and there would be no benefits to the national financial system or to the economy.