Few Americans Invest in Startups

[Small Biz Trends]

Invest in Startups

Few Americans finance new companies, particularly those founded by non-relatives, recent studies by the Federal Reserve Board of Governors and Babson College reveal. That’s part of the reason why entrepreneurship advocates are frustrated by the Securities and Exchange Commission’s (SEC) failure to write the rules for equity crowd funding in a timely fashion. Many in the entrepreneurship community hope that crowd funding will boost the fraction of Americans putting their money in start-ups.

Few Americans have invested in other people’s newly founded companies in recent years. The 2012 Global Entrepreneurship Monitor (GEM), a representative survey of American adults directed by Babson College, finds that only 5.3 percent of Americans “personally provided funds for a new business started by someone else, excluding any purchases of stocks or mutual funds” during prior three years. Moreover, the typical amount invested by those providing funds was only $5,000.

Few American households hold equity investments in private businesses operated by someone else. The 2010 Federal Reserve Survey of Consumer Finances – a representative survey of the financial position of American households conducted every three years by Federal Reserve Board of Governors – shows that only 1.9 percent of American households holds equity in a business that no member of the household actively manages.

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