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Casual cash

Entrepreneur, Jan, 2004 by Jennifer Pellet

CASUAL CASH: with VC investment just starting to show signs of life, it's still a good time to look at other funding options. But where to go? Informal investment may be the key, according to a report by the Global Entrepreneurship Monitor (GEM), a research program that assesses the national level of entrepreneurship. "The aggregate amount of informal investment is enormous," says Paul Reynolds, professor of entrepreneurial studies at Babson College, which cosponsored the report with the Ewing Marion Kauffman Foundation. "It ranges from someone who gives their kids $500 to start a venture to someone investing millions."

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Already, nearly 1 in 20 adults report investing money in entrepreneurial businesses, with 50 percent of those proceeds going to companies owned by relatives, reports the GEM, which advocates tax incentives that would further fuel the growth of informal financing. "A lot of this is family money," points out Reynolds, "so if you can get a tax benefit for providing funding for your children to go to college, why not have an officially recognized tax savings or benefit for helping them start businesses?"

Unfortunately, that idea is still in its infancy. The good news? Informal investment weighs in at a hefty 1 percent of GDP, or approximately $100 billion, in the United States--and not all of it is earmarked for junior or the spouse, says Reynolds. "Twenty-five percent goes to a neighbor, friend,colleague or someone the investor knows, and between 15 and 20 percent goes to a stranger with a good idea," he says. "That's why networking is so important."--J.P.

Business Services Industry

Casual cash

Entrepreneur, Jan, 2004 by Jennifer Pellet

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