The so-called "Bank of Mum and Dad" shows how more parents are helping their kids buy a house. Even better would be the "Venture Capital Firm of Mum and Dad", where parents help adult children start and grow a small business – and buy their job.
The idea is plausible. The Bank of Mum and Dad is reportedly Australia's fifth-largest home lender, providing $65.3 billion in funding, a Mozo survey found.
Could the Bank of Mum and Dad fund start-ups?
Imagine $65.3 billion of capital being injected into Australian start-ups rather than an overpriced property market that crushes young people with debt. We would create hundreds of thousands of ventures, many jobs and a new generation of small business owners.
Almost one in three Australian parents loaned their family an average $64,000 to buy a property, according to Mozo. That would fund a few micro-ventures with low fixed costs.
As an aside, think about how the withdrawal of $65.3 billion in parental capital would reduce property demand and prices, and the effect of that capital being reallocated to productive assets, such as innovations and new ventures.
Yes, it'll never happen. Many adult children who receive parental help to buy a house do not want to start a venture. Most parents are more comfortable providing funds for a house deposit than equity for a new venture. Also, buying a house is partly a lifestyle investment.
Not all parents can afford to give their children a combined $64,000 for a deposit, or want to. But the Bank of Mum of Dad reinforces the potential of this funding source – and why we should ask whether part of this capital pool can include micro ventures.
The issue is timely. Unprecedented investment in artificial intelligence, robotics and automation will reduce jobs for young people. The National Australia Bank's move to axe 6000 workers and replace a third with tech-savvy staff is just the start.
This column has, for the best part of a decade, foreshadowed the challenge for university graduates to find higher-paid jobs in their profession. Even some with double-degrees will end up in lower-paid service jobs amid the decline in skills demand.
Just as parents are concerned about the likelihood of their children buying property, so too should they think about a changing white-collar job market. Many young adults will need to create their job, not only apply for it, in Industrial Revolution 4.0.
To use an analogy, helping kids start a venture is a bit like parents "providing a fishing rod rather than the fish". That is, providing capital to help an adult child start a venture, build wealth and create a higher-paid job – one that gives enough income and security to take out a loan and buy a house, without parental support.
Or better still, giving kids the chance to be their own boss and the satisfaction and freedom from building and growing a venture. That must be better than a series of low-paid service jobs or soul-destroying white-collar jobs that overwork and underpay young people.
Of course, many such ventures will fail. That is the nature of start-ups and a reason why savvy entrepreneurs start lean, experiment, fail and recover. Almost two-thirds of parents who provided a house deposit did not expect to be repaid, the Mozo survey found, so parents are not expecting a financial return on their capital (only a large emotional one!)
Parents helping their children in business is hardly new. The Family, Friends and Fans (some call them Fools) are an accepted part of entrepreneurship funding. But the notion of parents helping kids in business has been more for wealthy extended families or the family business sector. It's not mainstream like the Bank of Mum and Dad.
Government and industry must think about how to expand and formalise the Family, Friends and Fans segment of entrepreneurial finance. There's more venture capital and private equity available in Australia for strong ventures, and the introduction of equity crowdfunding adds a new layer of funding options. But the Family, Friends and Fans segments is overlooked.
Governments should ask: how can we support parents who support their children into a new venture? Are extra incentives, such as tax breaks, needed? How do we educate a generation of parents who have not worked in new ventures about the benefit of helping kids in business?
Industry might ask: can we create investment vehicles to help parents save for a new venture, much like they might save to fund a university degree or a house deposit for their kids? Can we better link self-managed superannuation funds capital with emerging ventures?
Governance is another issue: how can we link ambitious young business owners with mentors and board directors? How can we help parents to think like investors in the venture who share in any return (that's good discipline) and perhaps serve on an advisory board or provide formal or informal management support where possible?
Can we be more innovative in Family, Friends and Fans finance? For example, specialist platforms and services to help parents provide equity capital for their child's venture. Perhaps new funding platforms can be created: school communities funding bright young students when they leave school and start a venture, or local councils doing the same.
My point is: in Industrial Revolution 4.0, the best source of a job for more people will be self-employment. Not just high-growth tech ventures, but small businesses, freelance enterprises and other micro-businesses in the Gig Economy. They will need capital and the best option for many is parental funding. So, let's make it easier for parents.
A final thought: this idea is not just about the children. The coming era of automation will make many baby-boomer parents redundant and needing a job. As superannuation savings must stretch further, the idea of investing in your child's hot new venture, getting involved in it and sharing in any financial upside, will appeal.