The much debated economic downturn has forced banks to significantly adjust their financial lending patterns. As a result, banks, and venture capital firms, are often unwilling to lend for new business start-ups, and regularly cap loans issued at 50% with imposed securities over land, stock or equipment. Thus, many entrepreneurs and individuals hoping to open small businesses are unable to receive bank backed start-up funding for their potentially profitable ventures. As a result, they are, more than ever, seeking out alternative investment channels.
In tow, many American politicians and economists have recognized this need and are striving to establish and develop alternative avenues for investment; with proposed policies building upon the country’s political and economic needs to generate economic growth despite increasingly cautious banking procedures.
Consequently, there are now several initiatives aimed at attracting angel investors; a key growth area where demand outstrips supply. The American government, for example, has developed several schemes to encourage angels. These schemes include State determined tax breaks and the foreign EB-5 investor visa; a visa enabling foreign investors to place investments through escrow currency accounts in return for US residency. Tax credits, the levels of which vary hugely between States, and have reached up to 100% in Hawaii, have sparked controversy among American investors, politicians, banks and members of the public. In some cases, such schemes, many of which expired in 2011, have been reduced or withdrawn.
The sharp increases in the numbers and categories of angel investors cannot, however, be attributed to government policies alone, neither can they be attributed, solely, to a change in the tide of banks’ lending patterns. Attention must be drawn to the not heavily publicized, yet increasing, numbers of ‘political’ angel investor networks. The ‘New Media Investors’ network, for example, has identified and harnessed upon the scope for using investments as a way to ‘rapidly transform politics’.
Political Investors – Understanding Motivating Drivers
Whilst many individuals or corporate shareholders may wish to pledge financial assistance to political parties or campaigns, they may be put off, restricted or barred by legal requirements. For example, whilst corporations are prohibited from donating directly to either national party committees or candidates, the donations of individuals are capped ($2000 to a candidate, $30800 to a national party committee, $10000 to a state, district or local committee and $5000 to another political committee). Individuals may also be put off donating due to stipulated formal disclosure requirements.
Further, financial constraints may prevent an individual or a company (federal elections only) from making a political donation. This is likely to be especially true during times of financial austerity and stunted economic growth, as donations, per se, do not provide an opportunity for direct financial return.
Ironically, however, it is at times of economic downturn when individuals may have the greatest wish to contribute to the ‘political economy’. This is because, it is during these times, that policies of political parties are at their most divergent and individuals feel that political ‘stakes’ are higher. Thus, for some, the need to identify ways of financially supporting political agendas, whilst not disclosing political associations and, at the same time, supporting national economic growth together with an opportunity for direct financial return, has become imperative.
Increasingly, the need to combine the above factors is steering wealthy individuals towards ‘political’ angel investing. Critically, the US Securities and Exchange Commission does not require investors to be politically neutral, nor deride of supporting any political agenda.
An Example – New Media Investors
New Media Investors is an early stage angel investment network within the US that openly discloses its political agenda, defining itself as a:
‘Project of the democracy alliance, a partnership of change makers committed to strengthening democracy by investing in and fostering collaboration among progressive leaders and institutions’.
New Media Investors deliver on their agenda through the use of specific entrepreneur selection criterion. Criterion, which include the need for supported businesses to ‘create progressive political change’ and ‘technology which can be deployed across various issues’, enable New Media’s investors to select and support enterprises which are designed, in part, to further their personal political agendas. With an increasing body of angel investors making politically aligned business investment decisions, the long term implications for particular industries could, potentially, be huge. As per one investor:
‘This is trying to really say we want to take this idea of innovation and make it a core part of progressive political change’.