Fact: Lack of Safety:  Collectively, venture capital firms fund less than 1.5% of start-up and early-stage companies seeking venture capital.  For the start-up and early-stage companies that do receive venture capital, they collectively receive less than 2%[1] of all the venture capital available for investment. More often than not, the founders lose voting control of their company. Why? Most start-up and early-stage companies have not been properly engineered to mitigate financial, operational, litigation, or regulatory risk. They are too risky for professional investment.

 

Fact: Lack of Quality Companies: There is more venture capital available than at any other time in world or U.S. history. However, the money is not being invested due to a lack of quality deal flow. In the venture capital or private equity industry, this reality is called “capital overhang”. The term capital overhang refers to the amount of private capital committed by investors to venture capital and private equity firms for investing purposes. When VC and private equity funds are created, most have limited lifetimes. That means that fund managers typically have 5-7 years to invest the private equity overhang, or they must send the capital back to their investors. Over the decade 2007-2017, the capital overhang in the U.S. private equity markets hovered around the $500 Billion-dollar level in the U.S., and it was getting close to $1 Trillion Globally.[2]  In 2019 it reached $2.1 trillion globally and close to $1 trillion in the U.S.[3]

 

This means U.S. venture capital and private equity firms had to give back around $1 trillion dollars that year to their VC Fund investors, due to the lack of quality deal flow.

 

Fact: Venture Capital vs. Securities-Offerings: The total venture capital invested into start-up and early-stage companies were just $51.9 billion for 2020.[4] However, the Securities & Exchange Commission estimates that $2.67 trillion was raised through exempt offerings (private placements) compared to approximately registered offerings (IPOs) of $1.5 trillion accounted for new capital.[5]

 

Therefore, companies raised 51 times more private capital with privately placed securities offerings, than through traditional venture capital means.

 

Fact: Crowdfunding & Integration: The median dollar amounts raised through Regulated Crowdfunded securities-offerings is only $100,000.[6] Start-up and early-stage companies that are properly engineered can integrate exemptions to securities registrations, so that ample seed or development capital can be raised early on through different exemption(s) with the same deal structure (the definition of “integration” regarding securities-offerings). Hence, it is critical that one integrates multiple offerings to assure substantial amounts of private capital is raised without severely diluting the Founders’ permanent equity ownership and voting control.

 

Fact: Founder Wealth Dilution: In typical scenarios, the founders’ median percentage of equity ownership at the IPO stage was diluted to only 7.5%, primarily due to traditional venture capital terms[7]. For those who capitalize their companies correctly through a series of hybrid-securities-offerings, the median founders’ percentage of equity ownership at the IPO stage can be greater than 50%, sometimes much greater.[8]

 

Therefore, if you want to maintain the vast majority of equity ownership and voting control, an offering of hybrid securities is the wisest avenue of choice. 

 

Fact: Small Business Service Providers: Such as; commercial, merchant and investment banks, accountants, attorneys, insurance companies, marketing and IT firms, normally compete in a zero-sum game environment with their competitors to attract new customers and clients. Would internal, organic-incubation of such well capitalized customers and clients be beneficial to these Small Business Service Providers?  If so, EPEC provides Partnership Opportunities like no other.