The Reserve Bank has noted the growing strain on the "Bank of Mum and Dad" as parents help their children get into a crazy property market. But what about mums and dads as angel investors who instead help finance their child's first venture?
Many entrepreneurs over the years have tapped their parents for seed capital – the "family, friends and fools" form of capital raising. The funds are often more like a gift than an investment: there is limited or no due diligence and return expectations may be low.
![An envelope of cash for a business venture could be an investment in your child's future.](/web/20161118231701im_/http://www.watoday.com.au/content/dam/images/g/r/1/6/o/6/image.related.articleLeadwide.620x349.gsqbch.png/1479315760479.jpg)
Imagine if parents who are financially able to help their adult children into ventures, took an active approach to their investment: joined the advisory board, provided informal mentoring or worked part-time in the enterprise.
I know what you're thinking: how many parents, especially those who are easing back on work, want to be tortured in their child's venture? And how many twentysomethings want mum and dad hovering over their hip start-up and clouding its cool factor?
![Parents should take a hard nosed investment approach.](/web/20161118231701im_/http://www.watoday.com.au/content/dam/images/g/p/c/n/3/4/image.related.articleLeadwide.620x349.gsqbch.png/1479315760479.jpg)
And yes, only a minority of people have parents who are able to invest in their child's venture and wear the high risk of investing in early-stage ventures. Putting too much of one's retirement savings in your child's first venture is asking for poverty.
But hear me out. More people will start ventures after school or university in the next 10 years as opportunities emerge and as the New Machine Age radically reshapes the labour market and changes the notion of full-time work for university graduates.
As I've written before in The Venture, more twentysomethings will have portfolios of micro-jobs and micro-ventures, working independently in knowledge-based industries. They will move between corporate employment and self-employment, or combine them.
More people will have a crack at venture creation in their twenties, possibly between corporate jobs or combined with a series of part-time jobs. The start-up community will rapidly expand as people launch ventures to create an income stream.
Fledgling entrepreneurs will need capital. The majority will not get it from banks, venture capitalists or through crowdfunding platforms. Yes, there's more capital available for smart venture ideas from capable entrepreneurs. But I'm talking about ventures that may not yet have proof of concept and are run by founders with limited experience.
Their best source of capital is their network. People who know them and respect their talent: their immediate and extended family, friends, and physical and online communities. It's about trying to create more structure around this form of early-stage micro finance.
Parents have a bigger role to play in venture creation. Many parents, myself included, plough money in their children's education, hoping it will lead to a good job. But do we need to think more about career options for our children that involve self-employment?
That might involve those parents who are able, building a small investment fund over many years, to back their children into micro ventures. Or allocating a tiny fraction of their retirement savings to help their children get going in business, or create employment for kids who are between jobs and waste their days on PlayStation and watching TV.
I'm not suggesting parents take a huge risk on their child's venture. But those who plan for it early might be able to chip in $5000 for the venture, possibly even the first venture attempts. Who knows? That's a lot less than helping on a deposit for a property in Sydney or Melbourne and potentially a lot more rewarding.
Nor do I suggest that parents approach this investment as a form of child charity. If anything, parents should be much more hard-nosed about their funding. They could, for example, require a basic information memorandum for the investment and ask their accountant or financial planner for advice.
The parents might take a small amount of equity in the venture rather than treat their investment as a loan (often, never repaid), so they share in any upside.
Parents, particularly those who have had successful business careers or started ventures, might join the venture's advisory board (or insist one is formed). Or introduce others from their network who can help the venture, with their child's approval. Or provide informal mentoring along the way.
Perhaps they could provide free labour to help the venture in its formative stage, or take on paid part-time work in the business and use it to find a few extra tax deductions.
The venture might be the best form of employment for a fiftysomething corporate employee who is retrenched and cannot find another decent full-time job because of shameful age discrimination. Their child's venture could give them a new lease of life in the workforce – and a chance to use a lifetime of skill and contacts for someone who appreciates it.
Governments could think harder about incentives to help parents invest in their child's venture. Abolishing capital gains tax for qualifying family-based investments in new ventures is one idea. The right incentives could help the pool of self-managed superannuation funds direct more funds into private companies, in search of higher returns compared to those from public listed companies.
This column might be criticised by those who believe entrepreneurs do not need help from their parents and that the idea is a sure-fire way to destroy capital. Or that many parents will add little to emerging technology-based ventures. I disagree.
Ultimately, the idea is about linking young entrepreneurs who need micro-finance and advice with older workers who have surplus capital and time to get involved in ventures.
It's about creating a better mechanism for people to invest in very early-stage ventures and share in any gains. And it's about creating more employment options for young people, and older ones too as the population ages.
I have never seen so much interest in entrepreneurship from twentysomethings in my time writing about it or teaching venture courses. It's time for parents to follow suit. Some I know are investing in their child's venture and encouraging them to start a business before settling on a corporate career (if at all). Their support could make all the difference.