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Mr. Prez – Stimulate Economy with the Greater than $250K Income Crowd

October 7th, 2009 · 4 Comments

Mr. President Obama,  Our whole family tuned in to watch your initial address to the nation after you were elected.  It is interesting to see how quickly our nation forgets the hope that accompanied your election, as we desire a quick fix to our economy and we get caught up in partisan fear mongering.   I originally wrote this blog when it was fresh on my mind but never posted it for some reason.   I believe it is a message you need to hear…to encourage you and to remind you of what makes our country, America, great!  It is the innovation that forges from the entrepreneurial spirit that came with our ancestors that ventured to this new land in search of something better, freedoms that were not available in their home land, and continue on today as new immigrants embrace our culture and the American dream.   It comes of the Entrepreneur Spirit that was forged out of the great depression when there were no jobs, and the cottage industry of home based business and small business was born.  You must not forget that, Mr. President.   Without capitalism and entrepreneurism, and the freedom to pursue a passion that comes from an idea an entrepreneur has to produce a better mouse trap or for something wholly new and inventive, we have lost our core.   Other  countries manufacture what we invent.  Other countries buy what we invented and found a more innovative, cost effective way to build and deliver.   Providing the fuel for the growth of small business is the answer to your problem.  Government bureaucracy is incapable of addressing their financial needs, banks won’t do it, only compassionate capitalists with a bottom line objective can do it.  

During your initial address, my family was intrigued to see if you could deliver inspiration and hope as the  President and not just a candidate.   You did.   If the congress, the market makers, and the American People do the things you called for in your address, we will be a stronger nation years from now.   You hit on many things that are near and dear to my heart as an entrepreneur, compassionate capitalist (tm) and venture catalyst.  

  1. We are Not Quitters.   Our great nation has faced every challenge from revolution to terrorist attacks, from assassinated presidents to brief periods with no president as a group of judges decided our fate, to great financial corruption to market meltdowns, and in all cases we emerged stronger from it.
  2. We are Innovators.  Of all the countries in the world, more innovation and invention comes from here.   People from all over the world seek to come here, to our land, to pursue a dream-to invent and create-whether that be something as seemingly silly as a hula hoop, or as wanted as a treatment for cancer, or as needed as a revolutionary way to create energy.   We provide the fertile ground for our native born and those that join us from other lands to invent, innovate and prosper as a result of their ingenuity and perseverance.
  3. We are Capitalists.   Part of pursuing the American Dream is that there is no limit put on it by our government.  By bringing innovation to the market, building enterprises that the free market dictates failure or success, there is a natural selection…businesses that solve problems in the marketplace, figure out how to deliver that product or service in an efficient manner to a target audience, and create profit from it.   It is the natural order of things.    The incentive is the profit, the wealth that is created.  It is through this wealth that business owners create other businesses, provide jobs, create industries and invest. 

Proposal to President Barak Obama and our Congressional Leaders: Stimulate the economy by providing a tax offset incentive for accredited investors for every $25,000 they invest in a start up or early stage company, their taxes in that year are offset by that reduction in income, not when it is a loss, but now. This will create Jobs and bring Innovation to the marketplace with such a force our economic recovery is guaranteed.  There is a great deal of individual wealth sitting on the sidelines.  They are uncomfortable with investing in the volatile stock market, there is no way to predict which real estate markets will rebound and when to produce a return….the purist form of buy low, sell high is with investment in private companies before they go public.   They are the lowest in value they will ever be at that initial sourcing of capital, and now is the best time to build a business and ride the wave of economic recovery.

Without the potential to enjoy the fruits of our labors, the rewards for our innovation and perseverance, the motivation is not as strong.   It is very noble to believe inventors, scientists, and innovators do what they do for the common good, but really it is about creating wealth.  They get noble in their distribution of wealth after they have created it and have extra to share, donate, and invest in things that have indirect ROIs – environment, education, and the less fortunate.  Our government strives to only take what is necessary to pay for things that there is no incentive, or direct ROI,  to the private sector to do on their own.   There is little wealth or ROI on building roads, but there is in inventing a more cost effective building material.  

My request to you, Mr. President Barak Obama, is to provide an incentive to the investor that directly impacts their bottom line and directly impacts the innovator, the entrepreneur, the small business owner that has the greatest potential to participate in our economic recovery and building a stronger nation a few years from now.   Banks will never take the risk that an angel investor will take.   In fact we are seeing that right now.  Even though the banks have money to lend, they are not lending it to the small business owner or freeing up their existing lines of credit or revolving credit so they can invest and expand.   In anticipation of a Consumer Credit Protection action, they are raising interest rates and increasing fees.  It is the successful business man or woman who has decided to allocate some of their earned wealth to invest as an angel investor that bridges the capital divide, that puts time, experience, and money into the entrepreneurial endeavor that will bring innovation and invention to the market and create the jobs we so desperately need.   Before a venture capitalist will entertain a deal, the angel investor has to have already taken the risk to invest time and money in helping that start up become viable enough for the venture capitalist.  Angel Investors, the accredited investors of our society, do this because they believe a business can succeed, and most importantly, the potential direct return on the investment, the reward they will get will exceed the risk by such a magnitude that it is worth it.    They are willing to risk losing the extra wealth they have created; through saving, prior investments and income from their own successful business endeavors; in order to invest in a next generation of innovation.  Why? Because first and foremost, they believe they have potential to create more wealth and only after that, to be noble in helping bring some innovation to market. 

Small business owners want to attract good employees.   The investors want the best management team and employees so their investment has greater likelihood to succeed.   Offering health insurance is one of the ways a small business stands out against their competition.  If you provide incentive to the investment market to put money into these bright stars of tomorrow, they will have the money and desire to provide health care to their employees.   Focus on fixing the cost of medical care.   Mandating insurance is not the answer because that only provides a continuing source of payment for inflated cost of care and dysfunctional inefficient delivery system.   If you focus on helping the economy grow, creating jobs, new products in the market to be taxed as they are bought, you will increase revenues to the government and provide the fuel for our economy.  

My Proposal:   For those that make more than $250,000 in income, let them have a direct tax offset for every $25,000 they invest in a start up or early stage company…now, not when they lose the money as a capital loss, but when they make the investment.   You want to create jobs through small business, then make it easier for those innovators to get the money they need to start and grow their business, to become bankable.  

Many states have incentives and tax programs such as this.   There has been a federal bill bouncing around capital hill for years, but never passed that would give the incentive to the accredited investors to invest aggressively in free enterprise.   Two of your platforms would become a reality very quickly….Innovation and Jobs.   Money has a natural tendency to be attracted to ways to create more of the same.     If the government encouraged investment into businesses that created jobs, that brought innovation to the market place, that made us stronger as a nation, then the outcome would be exactly what we need — innovation and jobs.   The ripple effect of that is positive to all sectors and it rewards those that invent and persevere…all part of the American fabric.  

Don’t over complicate it…. Men and women with naturalized income of over $250K or combined household of over $350K can receive up to 15% of their income as tax offset against income when invested in early stage (less than 10 employees or contractors and less than $500,000 in revenues) private companies, in the year the investment was made.   Call it the investors’ economic stimulus package. Those companies would have to use the money to convert contract workers to US based employees with benefits, or hire new employees in the US, or purchase equipment or services specific to growing their business.   There would be no restriction on industry except real estate investment because that does not bring innovation to the market and any industry already receiving tax incentives and tax credits.   If the investment turns out to be a loss, then the investor would not be eligible for an additional tax right off on that investment, standard capital gains taxes would apply.   Make it a limited time program.  Investments must be made by November 2010…or a in the 12 months after passing through congress.

Thank you for your vision and leadership, President Obama.    Health care reform may be something you believe is needed and can be your legacy if done right, but a greater legacy would be to see the innovation that comes to market, the jobs that would be created and the unbelievable wealth that would come a few years from now from a program such as I have proposed that will get private capital off the sidelines and into the very businesses that the banks have abandoned and are too small or not in the right industry for Venture Capitalists.  Please help our entrepreneurs succeed through making it easier to attract the capital and create the jobs.

Respectfully,–
Thanks, Karen Rands
Connect with me on twitter.com/karen_rands
Schedule an initial consultation by going to www.launchfn.com/registration.html

Karen Rands
President, Launch Funding Network
Managing Director, Network of Business Angels & Investors
Coordinator, Southeast Private Equity & Capital Conference

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Tags: Current Financing Trends · Entrepreneur Biz-Buzz · In The News

4 responses so far ↓

  • 1 elbie ancona // Oct 7, 2009 at 9:38 am

    Karen, you said it all and more!!!!

  • 2 hotspot shield // Nov 6, 2009 at 12:54 am

    What will happen to scholarship money that is left over from college tuition? I think reallocation of our tax dollars this way would be good. Seems like President Obama may have listened since they are including some stuff to stimulate private invesetment in to new busiensses.

  • 3 Landlord // Dec 6, 2009 at 10:24 pm

    Great news for entrepreneurs and investors alike.

  • 4 John Joseph // Sep 22, 2010 at 11:58 am

    Wish Obama’s staff actually saw this….. brilliant idea!

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