Today, 1 percent of Americans own roughly 40 percent of the total assets of the country.
Compared to other industrial nations, we are trailing behind — our country is starting to look eerily similar to developing nations, where true democracy struggles to thrive because the working class is disaffected and does not really have a sufficient economic interest.
Now, the United State’s middle class is showing the signs of being disaffected, and its members are directing their anger at anyone who looks remotely like the boogeyman. Major trade partners such as China and Mexico are portrayed as culpable, but this notion needs to be reined in for the middle class to prosper again.
Searching for the truth of why our middle class is unhappy is not really that important, though. What is important is finding real solutions to providing well paying jobs and participating in the equity of the country.
In the past, a middle-class family with the head of the household earning a blue-collar wage was able to afford a lifestyle that included home ownership, vacation, and leisure. Today, even with two incomes, that same family may still fall short of being in a comfortable lifestyle. So what is to be done?
Our country has not lost the American Dream, where anyone can become a millionaire. For proof, look at the number of U.S.-based startups valued at upwards of $1 billion that were started by immigrants. Take a look at Google, eBay, Facebook, PayPal, and others. Ten to 20 years ago, some of these companies were no-name startups, and today, they are employing hundreds of thousands of new jobs that are well paying and have an equity component. However, Silicon Valley and its “El Dorado” success is not enough to bring back our country to its post-World War II success.
If the past is indicative of the future, we need to bring back the entrepreneurial spirit and industrial innovation that has existed throughout the country over the past 100 years. America became a giant because it provided entrepreneurs the capital they needed to build their companies and achieve massive success.
Capital is the critical component for any business that uses innovation to drive its success. Bootstrapping a company is still possible for those who are prepared for the intense pain and time it takes, and this option exists and is available to anyone who dares. In reality, though, few businesses can be bootstrapped. So for most entrepreneurs, capital is necessary.
However, capital is biased by factors that are beyond hard-working entrepreneurs’ control. Typically, white men who are highly educated will have an unfair chance at receiving capital. In a study I conducted, I found that most of the VC was received by entrepreneurs who attended one of 24 universities. Yes, only 24 out of thousands of higher education institutions. Furthermore, Silicon Valley, Los Angeles, and New York alone represent a majority of the money raised.
In a country comprised of thousands of universities and a diverse population of people, it is not that hard to see why many entrepreneurs feel equally upset and discouraged as the middle class. It is those entrepreneurs who create nearly two-thirds of the jobs produced in the U.S. every year. These jobs are what keep this country a democracy and not a plutocracy — or, worse, a dictatorship. If we want to preserve our cherished values, we need to pay attention to who is participating in our economy.
While the American Dream is still alive for some, it’s definitely not for others. Getting new capital into the others’ wallets will create a new economic prosperity unseen since the post-WWII era.There is a solution that has quietly appeared with no fanfare or real press. In April 2012, President Obama signed the JOBS Act and announced that all Americans will be able to raise the capital they need to succeed with this new piece of legislation. The JOBS Act promised to go live in December 2012 with the oversight of the SEC. However, it took three years for one of the most important portions of the act, Title IV, (also known as Regulation A+) to become available to everyone.
So what is the big deal with Reg A+?
For the first time since the Securities Act of 1933, ordinary citizens can invest in startups and companies that need capital to grow. Given that existing capital sources are limited and biased, this new rule stands to eliminate these artificial constraints.
Still, this rule is not without costs to the entrepreneur, who will need to pay a certified accountant to prepare a two-year audit and a securities attorney to prepare the offering circular reviewed by the SEC. However, it will give the entrepreneur access to 250 million consumers who own IRA accounts, checking accounts, and saving accounts. This wealth is trillions of dollars large. It dwarfs the $120 billion in angel and venture capital invested every year.
On June 19, my company launched our equity crowdfunding platform the very first day the rule was promulgated by the SEC. A small startup called Elio Motors, founded by engineer Paul Elio in 2009, was on our platform.
Paul was on a mission to change the cost of transportation for the poor and the middle class with a car that would cost $6,800 and offer 84 miles to the gallon, but he needed the capital to build it. Unfortunately, VCs and private investors were not interested because it was not that fashionable to invest in a gas car company — especially given that Ford Motors, which was founded in 1903, was the last successful one. However, thousands of fans preordered the car with $1,000 deposits.
Our company launched Paul’s campaign, and within a few weeks, it was clear that the demand to purchase shares in his company was significant. On January 31, 2016, Elio Motors closed its offering with a total close to $17 million in money received by 6,600 investors. These investors are his fans, customers, and advocates. For many of them, it was the first time they had invested in a stock — period. For others, this was their first entry into the private capital club.
Paul wanted to offer some liquidity for his newly minted shareholders, so he listed his company on the OTCQX exchange. Very quickly, his stock price went from $12 to about $50, until it settled back to the mid-20s range. There is no way to predict how successful Elio Motors will become; however, it is now on the right track to creating thousands of jobs in America. The average investment was $2,500.
Elio Motors illustrates how ordinary people can power a new company without anyone investing a large sum of money. This is a first since 1933, and as of this writing, this is the largest equity crowdfunded company in America. Coincidentally, it was also the only company to go public in January 2016. There is some irony in this because StartEngine — being itself a tiny startup — has done what Wall Street was not able to do after the market went into a correction phase during the month of January.
Will Elio Motors announce to the market the beginning of the new American Dream? Will it start a new capital revolution? Will it become the icon of our new American economy? It is too early to tell; however, the JOBS Act is in its first inning and has already flexed its muscles to change how entrepreneurs get access to capital in an unbiased and democratic way.
I am proud of Paul Elio and what he wants to do. I am waiting for the next Paul Elio to walk through our doors and slam down its mission to help build our nation back — one where every American has access to well paying jobs and a hand in the success or failure of the American Dream.