Business is risk. Wise investing requires creating a favorable balance between odds of capital loss and potential of profit from company's success. Investing should always be a question of finding a favorable Risk/Reward Ratio. Investors who speculate in startup companies are betting against very long odds. They can’t make a profit speculating in a series of startup companies because Risk/Reward Ratio is always against them.

The U.S. Small Business Administration (SBA) reports that about fifteen business startup companies out of one hundred succeed for at least five years. However, their fifteen success stories include franchises and professional services companies, which have a far higher success rate than average Startup Company. Local businesses require less risk capital than a business with a potential national market for their product or service. Thus local business startup companies are somewhat less risky to capitalize. The odds of a startup company, with a new product or service, succeeding in national market are less than 1-in-100.

To breakeven with those odds on speculations in these startup companies, investor must recover one hundred times his risk capital. A hundred-fold return on any investment is extremely rare. The startup company investor is about as likely to pick right number on a roulette wheel in Las Vegas three times in a row as break even speculating in startup companies. They are bad bets for many reasons.

It Isn't Always Lack of Money

Entrepreneurs usually put blame for their failure on lack of capital. But often, problem is how they use capital they raised. It's often misspent.

In my 24 years in stock industry, I've advised assorted public and private investors funding startup companies. Here are a few examples of how their money has been misspent:

1. The entrepreneur spent $1,000 on a hat rack. The rest of office was furnished in equally expensive 18th & 19th Century antiques. 2. The phone sales entrepreneur leased penthouse office in financial district. 3. The entrepreneur bought new, expensive cars for his seven managers, who were to run used clothing stores. Keep in mind that late billionaire, Sam Walton of Walmart fame, drove a beat-up old pickup truck. 4. Most of risk capital was used to buy a condo in Aspen so that staff could develop business plan.

Here are a few of common misspent risk capital funds mistakes made by Entrepreneurs:

As an investor, it's important for you to realize that global business consolidation is logical result of reduced world tariffs and regional free trade blocs like NAFTA and European Union. It's a trend that excites imagination of smart investors. Simply put, Multinational Corporation investment offers a better Risk/Reward ratio than investment in national or regional companies. Let me explain why this is and why you should seek such companies for your investment dollars.

Lower Taxes Means Greater Profit

Business taxation isn't uniform in Global Village. There are high tax countries like United States, Great Britain and People's Republic of China (PRC). There are low tax countries like Belize, Cayman Islands and Bahamas. A multinational corporation can pick its tax jurisdiction and thus limit its tax obligations. Doing so translates instantly into greater profits.

Any company that produces and sells its product in same country will be subject to taxation on its profits in that country. So a domestic company, focused on building its local market, won't benefit from incorporation in a low tax jurisdiction. However, a company that produces its products in one country and sells those products in another country can select tax jurisdiction in which it will pay its taxes.

For example, if your company produces and sells a product in PRC and your gross profit is US$100,000, your after tax profit will be US$47,000. Why? The effective business tax rate in PRC is 53%.

However, if you are a Belize Corporation and contract to have your products made in United States and it is then sold in PRC, giving you a gross profit of US$100,000, your after tax profit will be $99,400. Why such a huge difference? The Belize effective tax, no matter company's gross profit, is currently US$600/year. Any company not considering such possibilities is cheating itself and it's shareholders - meaning you - of significant returns.

Using our example, a multinational corporation will have over twice after tax profit to invest in growth over a domestic company. And more money a company can invest in its expansionm faster that company will grow. The faster a company grows, better risk/reward ratio for investors. That's why it's critical you look for such companies in which to invest your funds.

Investment Without Repayment Obligations

The mantra for governments from Malaysia to Senegal is "create jobs and ensure political stability." Any company with an established export market outside of manufacturing country's domestic market can secure 50%-75% of their costs of a new plant from most countries in world. The reason is that multinational corporation will create local manufacturing jobs and thus ensure domestic political stability. Politicians will do almost anything to ensure that stability. Their jobs depend on it.

Lowering Taxes