One interesting and unlikely scenario to ponder is what would happen if everyone became a startup investor? Even though it seems unlikely, it could be very possible in the long-run. Given that the JOBS Act only allowed the average retail non-accredited investor to invest since 2016, it is a relatively new industry that has emerged. Looking at the stock market, we see that approximately 2/3 of US households own some form of either stocks or index related investments. Gradually, with more and more market developments and more democratizing of financial markets, it seems adoption would increase over time. The big elephant in the room is would this positively or negatively affect investing in startups, for startups and investors alike?
My belief is that in the long-run, if everyone adopted startup investing, this would be a net positive sum effect for all stakeholders involved, and even all people. Renowned angel investor Naval Ravikant mentions that wealth in the modern world is now a positive sum game, despite the fact that the world is full of zero-sum thinkers with a few positive sum thinkers searching for each other in the crowd. Investing in startups is no different.
On customers and consumers, it would have a immensely positive effect to have more startup investors. This would lead to more money available, with more companies and ideas funded. With free market forces, in the long-run it would allow the best of the best ideas, business and products to survive. With a greater pool, it would be likely that the remaining products fundamentally better people’s lives. Every generation there are a few companies that fundamentally change how people live for the better, and increasing the odds of better products and services is something that would excite me to pay, provided it is useful. Think of all the car companies that went under, leaving good car companies left with good product vehicles that are now taken for granted. Amongst other recent inventions like the internet, computers, phones, delivery, etc.
On the founder level, likewise with the end consumer, it is a positive effect to have more investors. You have more access to capital, and thus more fuel to fund your startup. Even if the startup ends up being a bust, you only reach your end terminal stage quicker with the greater amount of money. Think of driving to New York from the west coast but deciding to drive west instead of east. By having more money, you quickly hit the Pacific Ocean. People who thought they could be entrepreneurs may sooner realize they are not cut out for it, which is a very big blessing in disguise. It also encourages having more people attempt to become entrepreneurs, allowing some to successfully hit their dreams when they might not otherwise have been able to through raising money with traditional VCs. Disadvantaged sectors of society that may have been passed on normally can now raise more money, especially with the societal trend towards diversity and inclusivity, allowing minority groups to act on the disproportionate lack of funding.
On the employees of startups level, it will be nice for the company to have a little more breathing room to work with. The runway, or cash burn, is always a concern for companies that are in loss mode. Having more money raised ensures higher likelihood of pay being delivered, on time, and perhaps, even at a good or great rate to begin with. It would be a welcome sight to hear that the company has raised more than enough money to sufficiently handle liability and expense obligations, rather than the opposite.
On the investor level, it seems zero sum or even negative sum, but it’s positive sum to have more investors. Because there will be more capital raised and more quickly. So, this could lead to returns being achieved even quicker for the right startups, if an ideal state was reached that capital was not an issue. With companies staying private for longer and longer now compared to before, your returns in pre-IPO companies will become increasingly higher, and returns in public markets may become increasingly reduced. And you would have a greater number of startups to choose from that you might not otherwise have had, increasing the odds of you finding a unicorn to invest in. With the greater quantity of new startups would invariably increase the odds of more quality startups being formed, thus giving you a greater pool to work to find the next big thing. This may take more work to sift through, but with some filters in place, this simply gives you a higher quantity of potential high-quality startups to be a part of.
In the company life cycle, most companies usually go through 5 steps: starting point, growth point, maturity point, declining point, and death point. In the longer run future, it would seem that society would shift towards companies going through this entire cycle quicker than ever before. This means that startups can lead to people becoming richer quicker than ever before, if you pick the right ones to work for or invest in. And consequently, it would imply that companies at maturity or beginning to become saturated will actually die out quicker than ever before. So, speed is now at a higher pace than ever before, whether that is the pace of life, rate of change or of technology itself. So being nimble and moving towards what is just starting to become successful seems like a fruitful financial strategy, if one is willing to stomach the higher amounts of risk involved. Even with industries this will be the case now too. Oil is not necessarily dead, nor is coal, but the societal appetite towards arguably more cleaner forms of energy has led to this drawdown. Take it from where I am from in Alberta Canada, the oilsands is now just a shell of what it was 10 years ago. In fact, many degrees related to the oil and gas sector are now entirely nonexistent, whereas just 10–15 years ago, they were the hottest degrees in demand. And getting a job in this industry is extremely difficult. The best part then is when you get in, the getting out part would just happen for you via an acquisition or IPO, thereby reducing the risk that you would be caught in such a sunset industry that society is transitioning away form. So this would lead to more companies being formed, more active companies, and company size in terms of number of employees to be lower, given the smaller size of companies.
Disclaimer
This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.