Business Finance Essay: Investments & Jobs in the San Francisco Bay Area
Table of Contents
- General Information
- Angel Investors and Angel Investors Club
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- An Accredited Investor
- The Jumpstart Our Business Startups Act (or JOBS)
- The Main Provisions of the JOBS Act
- Ten Investing Opportunities and Possible Returns
- The Risks and Opportunities in Crowdfunding
- Angel Investing
- 5 Startups in San Francisco
- The Risks and Opportunities in Angel Investing
- Source of Startups Financing
- 10 Startups to Work For
- The Risks/Opportunities of Working for Startups
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In the contemporary business world, the methods used to finance startups have diversified as a result of technological advancement. Two main ways of funding that demonstrate a difference from the conventional means include crowdfunding and angel investing. The creation of these financing sources has been made possible through the Jumpstart Our Business Startups Act in US Congress (Freedman & Nutting, 2015). These techniques enable entrepreneurs to solicit money without limitations on interest rates and other fees. The current endeavor is to explain the critical issues involved in these investment opportunities, outlining possible portfolio in crowdfunding and angel investment in San Francisco and their risks and prospects, and, finally, describe some startups that offer excellent job opportunities and risks and benefits associated with those jobs.
Angel Investors and Angel Investors Club
Angel investors are influential individuals with high net worth who volunteer to contribute money to a startup business mostly for ownership equity or convertible debt. These people must meet the definition of accredited investor in the USA for them to qualify for funding. The main reasoning behind the angel investors is that there are some startups which have a vast potential of growth, and thus by placing their money in those projects, they inspire their growth as well as benefit from their future profits (Knight, 2016). The concept may appear similar to venture capitalists, but it differs mainly in a fact that angel investors use their money, while venture capitalists use cash pooled from many other investors. Angel investors also form groups known as angel investors clubs which help them share research on possible investments, provide advice to those enterprises in which they have invested, and pool their investment capital for better funding.
Crowdfunding is a funding practice where a large number of people contribute to a project or a startup venture mostly through small contributions made on the Internet. The investments are made via the social media and crowdfunding websites which attract a high number of investors who have as little as 10 dollars to contribute (Knight, 2016). However, unlike other forms of investments, in the crowdfunding, there is a lot of regulation through the U.S. Securities and Exchange Commission to ensure that small-scale investors do not put a lot of their saving into risk.
An Accredited Investor
According to a general definition, an accredited investor in the US is a natural person with a total asset of $1,000,000 excluding the value of private resident, or person with an annual income of over $200,000 recorded for the last two years and expecting the same salary on the current year. If a couple have a total of at least $300,000 of annual income for the last two years and is expecting the same in the current year, each one of them can also be considered an accredited investor (e-CFR, n.d.). Moreover, according to Electronic Code of Federal Regulations, accredited investors can include financial institutions like banks and insurance companies, employee benefit schemes or charitable organizations with an asset base of at least $5 million, and businesses with all equity owners meeting individual features of accredited investor. Finally, director, partner, or executive officer of the entity selling the security or a trust with assets of at least $5 million qualifies to be an accredited investor.
The Jumpstart Our Business Startups Act (or JOBS)
JOBS is a bill that was passed by the US Congress in the year 2012 before it was enacted into law by President Obama. The primary purpose of the legislation is encouraging financing of small businesses in the country by eliminating or easing some of the security regulations. Since the 2008 financial crisis, the government has been desirous to create new channels through which small businesses would enter the market by not depending on the financial institutions like banks. The JOBS act was thus developed to ensure that firms with potentially innovative ideas would gain capital without all the hindrances from strict regulatory requirements. For example, this law enables enterprises to solicit money from the members of the public even when they have an annual gross revenue of less than $1 billion; which was initially prohibited in the country (Knight, 2016). It is this law which gave legitimacy to the current standard practice of crowdfunding.
The Main Provisions of the JOBS Act
Concerning angel investing, this act has enabled general solicitation in private placements, meaning that investor can use the capital which was previously banned. Another provision is that the JOBS Act amendment has allowed the maximum permitted offering to raise to $50 million from the prior threshold of $5 million (Knight, 2016). The final significant provision concerning angel investing is that the act has redefined the accredited investor to a less strict position. Regarding crowdfunding, the statute allows a maximum of $1 million offer annually. It also limits the amount of contribution that an individual can make in aggregate based on his or her income. Those with annual income or asset below $100,000 are only allowed to invest $2,000 or up to 5% of their income or net worth based on which is less. Additionally, those with more than $100,000 in assets or annual earning are allowed to contribute up to 10% of the lesser of either total asset or income (Knight, 2016). Finally, the act demands that total contribution per year should not exceed $100,000.
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Ten Investing Opportunities and Possible Returns
Equitymultiple is an excellent investment platform that offers the real estate experience. The reason for selecting it is that it has an average of 10% return and deals institutional-quality commercial properties, thus chances of failure are low (Martucci, n.d.). Investing $3000 will promise a $300 gain in a year.
Peerstreet is a crowdfunding that offers investment in commercial property. What is good about this venture is that it provides attractive loan-to-value ratios; thus, investors’ money is always protected (Martucci, n.d.). By investing $2,000, with a return of 9%, it will give $180 in interest.
AngleList is a new way of crowdfunding mainly for the technology entrepreneurs. It is advantageous, because returns are promising despite the fact that investors have to wait for an extended period of maturity (Martucci, n.d.). By investing $1800 for five years, it promises annual return of over 15% which equals to $270.
CircleUp provides finances in fitness and food and beverage areas. It is an excellent platform, because Americans are increasing seeking for healthy lifestyles; thus, its future is guaranteed (Martucci, n.d.). With an average of 7.5%, investing $1000 will give a return of $75 in a year.
Fundable is a platform that offers funding to all sorts of smaller and less ambitious businesses. Its advantage is that it provides direct assistance to those enterprises for growth; therefore, raising their chances for success (Martucci, n.d.). With annual returns averaging at 9.6%, investing $1,200 will result in $115.2 of yearly expectation.
Crowdfunder is a unique platform that mainly finances non-traditional niches like green energy. Its approach to the funding of innovations makes it preferable, as most companies are shifting to these areas (Martucci, n.d.). It has 7.6% return rate, thus investing $1,500 will promise $114.
EquityNet finances consumer products with a return of 10.3%. Its main advantages are that it deals with a stable industry and has a good experience (Martucci, n.d.). By investing $3,000, there is a chance of getting $309.
Wefunder is another good venture that deals with long-term projects in a wide range of sectors. It has a maturity rate of 5-10 years but promises up to 20% per annum (Martucci, n.d.). By investing just $2500, the return will be $500.
Localstake connects only interstate investors and businesses in food production and apparel manufacturing. Its principal merit is that it has a fixed return of 10% annually for five years (Martucci, n.d.). Investing $2000 thus promises $200.
Fundrise is another real estate crowdfunding that provides 13% returns for its long-term project. Its advantage is that the transfer of shares is possible even before maturity period of 5 years (Martucci, n.d.). By investing $2000, it promises $260.
The Risks and Opportunities in Crowdfunding
There are few risks associated with crowdfunding that can make investors lose their money. First, there are a few regulations put in place; therefore, this venture may result in frauds and massive loss of money. Some investors also consider those investments that are dear to them, which might not be the correct way to earn in the industry (Freedman & Nutting, 2015). Additionally, long-time of maturity might lead to loss of money value due to inflation. Lastly, investors lack financing advice; hence they do not know the right time and place to invest.
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Concerning opportunities, crowdfunding has attracted a new regulation under the JOBS Act and, therefore, most of the investors have become more protected. The venture also gives a lot of satisfaction to the contributors, as they can finance those projects that matter to the society most (Freedman & Nutting, 2015). Additionally, it is another avenue of earning money in the economy as well as providing jobs to the community. Finally, this financing practice allows the contributors to have more hand on the investment thus influencing its outcome just like accredited investors.
5 Startups in San Francisco
Modsy is based in San Francisco and deals with home improvement where it helps people technologically redesign their homes. Pictures of the customers’ homes are used to create perfect 3D renderings of the house or apartment. Investing in this startup is beneficial, because the industry has an annual return of 14% (Cakebread, 2017). Here, $25,000 will be spent, and it is expected that in one-year period the yield will be over $3,500.
Gladly is the second startup in San Francisco which has an enormous potential. The primary endeavor of the company is to eliminate the tickets used by customer care replacing them with an automatic customer identification system. The reasoning behind this innovation is that clients encounter a hard time when they forget their ticket numbers. The innovation introduced by the startup is excellent and has a good future, as customer care services are becoming more technological nowadays (Cakebread, 2017). With a ROI of 15.69% and investing $20,000, this venture has an estimated $3,138 returns per annum.
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Qadium is another startup which is becoming famous in San Francisco. The primary aim of this venture is to provide security to companies’ network by scanning the Internet on their behalf. Investing in this startup is advisable, because business entities are increasing their demand for cybersecurity due to occasional infiltration experienced in the contemporary business setups (Cakebread, 2017). The business in this industry has an annual return of 15.96%, and by investing $20,000 in this venture, the estimated profits will be $3,138 per year.
Crew is a startup that aims at providing a software which will help in all sort of mobile workers activities. Nurses, waiters, and baggage handlers among other individuals use the current communications channels which are inefficient. The venture is thus attractive, because the Crew software aims at eliminating this inefficiency increasing employee management in the sector. Most original software has a high success rate of up to 25% return on capital but on average returns at 16% (Cakebread, 2017). The investment here will be $15,000, because even if the software fails, the expected return will be $2,400.
The last startup of interest in San Francisco is Nurx. The primary aim of this venture is to provide birth control to women online on request just like Uber Application. What makes this investment attractive is that it incorporates technology in ensuring that females receive birth control timely and with the right perception. It can also expand even outside the country to other markets quickly, and with a market return rate of 12%, it is quite promising (Cakebread, 2017). By investing $20,000, it is expected that the return will be $2,400 annually.
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The Risks and Opportunities in Angel Investing
Lack of success is one of the significant concerns in the angel investment. The investor places a lot of money in a single project, and the return of such financing relies entirely on the success of the startup. If the venture fails, the investor risks losing even the initial sum invested. Another risk is the lack of exit strategy in the industry. All angel investors do not intend to remain in a single business for years, thus at one point, they look for an interested party to buy their share. However, there is a risk that such party might not be found (Freedman & Nutting, 2015). Concerning opportunities, angel investors are involved in the startup implementation process, and thus they might control risks hence increasing the chances for success. Another tremendous opportunity is the returns that angel investor receives. Studies have shown that the funds invested multiple by two and over in five years, indicating that angel investors win over 20% returns on investment.
Source of Startups Financing
Sources of startups financing vary widely in the today’s economy. As discussed earlier, crowdfunding and angel investing are the newest sources of startups capital. Other sources include personal saving and loans, contributions from friends and family, and peer-to-peer lending. Leasing money from venture capitalists, financial institutions loans, and government grants are other sources of finances in startups. Finally, incubators which are created in learning, companies, and research centers help their followers with startup finances.
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10 Startups to Work For
Skymind is a company which deals with software development on artificial intelligence (AI). It is at the early stages of development and has raised 3.3 million so far, an indication it has a good future (Weinberger, Bort, & Kim, 2016). AI is becoming popular today; thus, future job security in this startup looks certain.
Slack is a startup which has been in operation for three years now. Since its formation, it has received over half a billion dollars funding in nine rounds with a valuation of $3.7 billion. The startup offers the work-chat app which attacks over 4 million users daily (Weinberger et al., 2016). Due to its rapid growth, working at this firm can result in more experience and better employment terms in future.
ThousandEyes, Cloudflare, and HackerOne are startups that offer solutions to the problem of illegal Internet infiltration. All these firms are based in San Francisco and have invested in an area that has gained much interest due to increasing cybersecurity issues. The business world is expecting more technological progress; therefore, companies are looking forward to having secure systems in future (Weinberger et al., 2016). Working in either of these three startups is an advantage, because chances of job security are high and present a wide range of experience.
Revel Systems is a firm which offers the iPad point-of-sale market or cash register to its users. The startup has 750 workers and has been rapidly expanding with funding of up to $127.3 million (Weinberger et al., 2016). Its large employee base means that the company has a considerable interest in heavy labor, an indication of a good employer.
Gusto offers human resource software and supports 40,000 customers (Weinberger et al., 2016). The firm produces HR products, and thus its employees must also enjoy same benefits making it a right place for employment.
Particle firm deals with the Internet of things (IoT), where it serves thousands of engineers. The IoT is expected to expand to $6 trillion; this startup is the best place to work, because it might become a multinational firm (Weinberger et al., 2016).
Stripe is one of the best places to work, as it deals with financial technology market. The startup offers software that readily accepts and tracks payments online making it simple to trade (Weinberger et al., 2016). Because online trading is becoming more and more popular, this is the place to work for better experience, better pay, and future growth.
Finally, Asana startup is firm that deals with tracking everyone’s work. The technological company has gained a considerable number of customers within a short time, because most business entities have massive problems with tracking what their workers are doing when at work (Weinberger et al., 2016). The startup is promising, as it has a vast market; therefore, working there is a good chance of growth.
The Risks/Opportunities of Working for Startups
The risk of taking a job in one of these startups is that there is a huge change of not having a balanced life between work and personal life. They are mostly busy with long working hours thus making individuals lose focus on personal issues. Risk of low payments and losing the job is also high, because most startups are not profitable while others can even fail. However, there are some opportunities, because if the firm succeeds, an employee who started with it will have had more experience and skill; hence, he/she has job security and excellent remuneration.
The above exegesis has presented definitions and explanations for fundamental issues associated with crowdfunding and angel investment. It has also given a portfolio of 10 crowdfunding ventures which would yield a total of $2,323.2 from $20000 in a year. Additionally, a collection of angel investing based on current startups in San Francisco has shown that Modsy, Glady, Qudium, Crew, and Nerx are the best startups, as they promise $14,576 from $100,000 in one year. Finally, the paper has identified ten startups to work at, mostly in the technologic field.