Is This Utopia or Disaster?
Accredited Investors will need to avoid the many pitfalls of deals too good to be true – deals that look like a million bucks on paper but are, in reality, highly risky ventures lacking the substance, management skill or vision to succeed. Many deal promoters have honed their skills in the art of the presentation with more emphasis on marketing and less on substance. It is well to remember that just because a transaction has checked off all the regulatory requirements does not mean it is a good one.
I predict that over the next 3 to 5 years there will be a lot of investor blood in the streets caused by failed deals.
“Nine out of ten startups will fail. This is a hard and bleak fact, but one that you’d do well to keep in mind. Entrepreneurs may even want to write their failure post-mortem before they launch their business. Why? Because very optimistic entrepreneur needs a dose of reality now and then. Cold statistics like these are not intended to discourage entrepreneurs, but to encourage them to work smarter and harder.”
In part, the blame will lie with overly optimistic, undisciplined investors looking for the home run. They are typically inclined to hear what they want to hear, as opposed to listening and asking the hard questions.
I do believe that the Accredited Investors can have a huge impact on growing small business and stimulating the US economy. But the failure rate of such investments and the inevitable negative consequences will be directly proportional to investor sophistication and their willingness to complete adequate due diligence review. If there are missing pieces to this puzzle, it may be the need for enhanced transparency in company reporting and a greater appreciation by investors of the potential risks to which they are being exposed, and of the need for serious, dispassionate research and due diligence before committing to an investment.