Note: This is the third in a series of posts about my experiences at the 2010 FIFA World Cup in South Africa. You can read the first post, Twenty Days in South Africa for the World Cup, to get an overview of what we did while we were there and the second post is about the soccer. This post is about our travels in and around Durban.
A View of Durban From the Beach
Durban is located on the east coast of South Africa on the Indian Ocean. It has a warm, tropical climate and although it was winter, it was about 75 degrees during the day the entire time we were there. We were told it gets to be 100+ in the summer, so spring and fall is the best time to visit. It was a welcome change of pace from Guateng, the province of Pretoria and Johannesburg. Durban seemed much safer than Joburg and the rest of Guateng, as there was much less razor wire and almost no electric fences. Durban was full of natural beauty. The city has some of the best beaches in the world for swimming and surfing, and right nearby, you’ll see some of the most beautiful coastline in the world.
The Coast North of Durban
We drove from Rustenburg down to Durban, without a place to stay. We kept calling places, but everyone was booked. We finally started to ask for recommendations and were told to call Florette, who had rooms to rent in her house. The price was reasonable and the area was nice, so we booked. Her house was in Umgeni Heights in Durban North, which is just north of the Umgeni river. Her neighborhood was located on the top of some hills and provided picture-perfect views of the ocean and Moses Mabhida stadium about 5k to the south.
Our Crew with Florette
We didn’t really have a plan, but luckily Florette had us covered. Not only was she a great host, but she also was a lecturer at the local university teaching tourism. Florette and her daughter Melissa helped plan out the best places for us to go for the time we were in Durban. Each morning, we ate a homecooked breakfast and then went out for the day. We saw two matches in Durban and like I said earlier, Moses Mabhida stadium is the most beautiful stadium I’ve ever been in.
Our first full day, we drove inland to PheZulu to learn about Zulu history. The drive to PheZulu was beautiful. We went up winding roads to high mountains that had great views of the valleys below. Once we got to PheZulu, we learned about Zulu culture and ate a Zulu meal of Pojtie, which is like a stew. We also were introduced to Biltong, which is sort of like South African beef jerky, but with real flavor. It’s sold all over South Africa and we ate a bunch of it during our stay.
Potjie at PheZulu
We decided to take the scenic route back toward Durban and drove through areas of extreme poverty, right next to 3 story houses. It’s amazing to see people living in shacks right next to 5000 square foot luxury houses. It was important to venture off of the main highways because as one guy put it “if you’re driving on the toll roads, you might as well be in America.” He was right. We saw a whole different side of South Africa when we went off the main roads, but we never once felt threatened or in any danger.
That night, we decided to go to an Indian restaurant for dinner. Durban has a huge Indian population of many well to do merchants and business owners. We at at Vintage on the recommendation of a guy working at an internet cafe and it didn’t disappoint. The tandoori fish was the highlight of the meal, but everything was great. Although they seemed to have raised their prices for the world cup, it was worth it since everything we were buying was so inexpensive compared to home.
The next day, Florette was nice enough to take us around to her favorite spots in Durban. First, we went to the Sharks Board, the people who are in charge of making sure that there are no shark attacks at Durban beaches. In the past, there were frequent shark attacks, with many being fatal. In the 1950s the Sharks Board started to put nets a few hundred meters off shore to deter the sharks. Since the nets have gone in, there has not been an attack on a netted beach. The Sharks Board museum was really interesting and included a shark dissection of a shark that had been caught off the Durban coast (decided not to post the shark pic).
Next, Florette took us up the coast to Ballito, where we looked at some huge waves on beautiful beaches. We were told that last summer when the moon, earth and sun were in a line, the tides were huge and washed out much of the road we were driving on. I could definitely see it happening, since the waves were huge, probably 12-15 feet. Its no wonder that Durban is one of the stops on the pro surfing tour. We went further up to Salt Rock and Shaka’s Rock, the place where Shaka Zulu, the great warrior leader of the Zulus, would plan his military strategies. He was a great tactician and used the attack of a buffalo as the model for his army. He was one interesting guy and if you like history, I’d suggest checking out some of his background.
Natural hole in the rock caused by wave action
We drove back down the coast back toward Durban to sample Durban’s famous cuisine: bunny chow. I have no idea where it got its name, but bunny chow is delicious. It’s a half loaf of bread, hollowed out, then filled with hot, spicy curry. We went to Some Like It Hot and shared mutton (why don’t we have more mutton here? It’s great if you cook it right), prawn, chicken and veggie bunnies. You’re supposed to eat them with your hands, but we had to use forks and knives since we weren’t experts yet. I think bunny chow would really catch on as a foodcart in the United States.
Bunny Chow
Speaking of free business ideas, we ate a ton of pies in South Africa. Not apple pies, but savory pies with flavors like curry, feta and spinach, mincemeat and veggies and tons of others. They cost about $1 and you can find them pretty much everywhere. I think pies would do extremely well in the US as fast food or snacks. They’re cheap and taste really good. The other import I’d like to bring back is the chili sauce that goes on Boerswoers, or South African sausage. We had ton of these, but the sweet chili sauce was great. I can’t find anything that tastes like it in the US and think it could take off. It’s spicy, yet sweet, sort of like sweet and sour sauce, but more spicy. After the Spain/Switzerland match, I’d convinced a street vendor to start importing to the US, but I’m not sure he’s going to follow through!
The next morning, we drove over to uShaka, which is sort of like the Wisconsin Dells of Durban. It’s a bunch of tourist attractions that really weren’t our cup of tea, but the beaches on the other side were beautiful. They’re huge sand beaches that are protected by the shark nets and offer great views of Durban and the stadium. We walked along the boardwalk, up to the fanfest and then relaxed in the warm sunshine until we were ready to go to the game later that day. We intended to go to the Victoria Street Market, but we couldn’t organize a tour that worked for us. If I go back, I’d like to check out the Market and old part of the city with a guided tour.
Mike and me on the beach in Durban
The next morning, we had to say goodbye to Durban so we could drive back up to Joburg to see the US play Slovenia. We decided that if we had to do the trip over again, we would have made Durban our home base and done trips from there, since the weather was so nice and the city had much more to offer. Overall, we had a great time in Durban. It was one of our favorite spots and it was even better because we had a local who was willing to show us around. Florette’s guest house was a great place to stay in Durban. Although the areas around the stadium weren’t amazing, if you have a car, there’s a ton to explore in Durban. It’s a place I’d like to come back to at some point in my life.
Fanfest for South Africa vs. Uruguay. There had to have been 7k supporters on the beach.
Note: This is the second in a series of posts about my experiences at the 2010 FIFA World Cup in South Africa. You can read the first post, Twenty Days in South Africa for the World Cup, to get an overview of what we did while we were there. This post is about the soccer portion of my World Cup trip.
When most people are traveling, they’re more likely to try new food, talk to people on airplanes and in bars and try new things. Overall, people seem to be much more outgoing when they’re traveling. I like to call it the traveler’s effect. I’ve experienced it all over the world, but every four years when the World Cup comes around, I see the traveler’s effect on steroids. This is why I love the World Cup.
Yes, there’s really good soccer, but that’s only a small part of it. During the World Cup, people are more outgoing, willing to help others and have a good time. Citizens of the host nation want to showcase their country and go out of their way to help travelers out and people who have traveled to the World Cup seem to be much more willing to reach out to each other. It’s an incredible phenomenon and one of the reasons I’ll do what I can to never miss another World Cup in my lifetime.
I went to seven matches in five stadiums while I was in South Africa and saw 18 goals or 2.6 goals per game, which was above the tournament average. Although the US didn’t get past the round of 16, all four games were really entertaining, especially our one win against Algeria. That match moves to the top of the list of the best sporting events I’ve ever attended.
Royal Bafokeng Stadium, Rustenburg – USA vs. England, June 12, 2010
Royal Bafokeng Stadium, USA/England
Our first match was USA/England in the small mining town of Rustenburg. We stayed in a camp with tents and it was packed with USA and England fans. Africa Ubuntu was the only place that advertised on the Internet and they were able to charge $50 per person per night for tents with beds. It was a bit expensive, but it was worth it because we had transport to and from the stadium and tons of people to watch the other matches with.
We took our shuttle at 3pm ahead of the 830 kickoff and went to Lucky’s bar, a township bar that was close to the stadium. When we got there, it was full of about 200+ really drunk English people and maybe 30ish Americans who were on their way. The English are an interesting bunch, sort of like Chicago Cubs fans in that they haven’t won anything in a really long time, but expect to win each year. Most were really nice before the game and even during the game, until the USA scored.
We had a great time with the English at Lucky’s and marched toward the stadium around 7pm so we could hear the national anthems. On our walk to the stadium, a few English fans threw beer cans at us from their passing cars, but we didn’t see anything serious. It was interesting that most of the English fans were 40-65 year old men, whereas most of the American fans were 21-30 year olds and there were clearly more American women than most nationalities. If people my age keep attending World Cups like this, the USA will be the largest supporters group at all of the further World Cups.
Lucky's Bar before USA/England
The atmosphere in Royal Bafokeng was electric from the moment we got in. The English have some great soccer songs and it was a pleasure to hear them singing over the vuvuzelas before the match. As it got closer to 830, the temperature started to drop and we put on our extra layers. The teams came out and we were ready for the national anthems. At most American sporting events, many people view the anthem as a necessity and stand quietly waiting for the real action to start, but at World Cup matches, everyone screams the national anthem. It’s enough to give you goosebumps. It’s probably my favorite part of a World Cup match.
We gave up a really crappy goal 4 minutes into the game, and the English thought they were going to run away with it. The US fought back and played really well, scoring on a howler by Robert Green. I thought we played really well and thoroughly earned our draw. England went right to the dressing room. The English fans were not happy and headed for the exits. We stayed in our seats and celebrated at the team came down to the supporters section to thank us for coming.
We went back to Lucky’s with our friends from Minnesota and met tons of locals. The South Africans in Phokeng were so happy to see us. We talked with hundreds of people and the common sentiment was that they were so happy Americans had come because they were worried that with the bad reports in the media, nobody would come. It’s like when you throw a party and tell people it starts at 9pm and at 845 nobody’s there yet. You have that empty feeling…what if nobody comes? The South Africans, especially the ones in Rustenburg and Phokeng were having this feeling x100. At 915, the first person starts to come in and by 945, it’s completely full and you know you’ve done a good job.
Lucky's Bar After USA/England
We had friends who tried to drive back from Rustenburg to Joburg that night and said it took forever. I’m really glad we missed the traffic and stayed in Rustenburg because we were able to check out Lucky’s, meet a ton of great people and experience some real local color.
Moses Mabhida Stadium, Durban – Germany vs. Australia, June 13, 2010 & Spain vs. Switzerland June 16, 2010
Germany 4 - Australia 0
We left the next morning and drove the 7 hours to Durban, which is on the Indian Ocean on the east coast of South Africa. We got to our guesthouse at about 5pm, ahead of the 830 kickoff. We didn’t have tickets, but I wanted to go. Our host, Florette, was kind enough to drop us off near the stadium and I walked over to try to buy a ticket. I ended up buying a category 1 ticket for $70 when face value was $160 and had a great seat to see Germany completely destroy Austarlia.
Moses Mabhida is the best stadium I’ve ever been to in the world. The architecture is beautiful and looks similar to the Calatrava designed Milwaukee Art Museum and the site lines are perfect. It also has a cable car that you can take across the roof for views of the city and the stadium. It’s located right off the beach in Durban and was about 5k from our guesthouse. Although there weren’t many things to do right around the stadium other than a casino and the beachfront, Moses Mabhida Stadium and Durban in general where highlights of the trip.
Moses Mabhida Stadium, Durban
I saw Germany destroy Australia 4-0 and then Switzerland upset Spain 1-0 and both times, the atmosphere was great. The German fans love to clap in unison and the Aussies were clearly having a great time until Germany unloaded on them. At Spain/Switzerland, most of the people were supporting Spain and it was eerily silent when Switzerland scored. Their raucous fans went nuts in their supporters corner. The Swiss are some of my favorite fans. I saw Switzerland beat South Korea in 2006 in Germany and hand a ton of fun with their fans and this time was no different. They remind me of Wisconsinites: they like beer, cheese and sports. There were tons of neutral South Africans blowing their vuvuzelas and really getting into both games.
Ellis Park, Johannesburg, USA vs. Slovenia, June 18, 2010
Ellis Park, Johannesburg
Ellis Park is one of the older venues of the World Cup, but might have been the best one in terms of watching a game. It’s sort of like Camp Randall, in that it’s located right in the middle of a neighborhood and the people around the stadium like to party before and after the match. We had category 3 tickets, but they were the best seats we had for any match, regardless of category.
We started out at Radium Bar, about 3 miles from the stadium and had a great time meeting tons of Americans and signing US Soccer songs. When we got inside, the atmosphere was again electric. All of the South Africans were rooting for the US and it was incredibly loud. The US gave up an early goal again and were down 2-0 at halftime. I still thought we could score some goals, since Slovenia looked pretty weak and sure enough, Landon Donovan scored a great goal right at the start of the 2nd half.
People started to believe and Ellis Park got louder. The US pushed for the equalizer for most of the second half, but finally broke through after Jozy Altidore had an awesome flick right into Michael Bradley’s path for the tying goal. Ellis Park erupted and I got bruises on the backs of my legs from jumping up and down so much. Everyone was hugging each other and the entire stadium was rocking. Minutes later, the US took the lead and the stadium was the loudest I’ve ever heard a stadium. Nobody heard the whistle from the referee who decided there had been a foul. There clearly wasn’t and after the match, the ref was sent home by FIFA for screwing up the match. We had no problems parking on the street and driving home and our car was exactly where we left it, with no damage.
Loftus Versveld, Pretoria, June 23 2010 – USA vs. Algeria
Prefamge at Loftus, USA/Algeria 12th Row
We were excited and nervous to watch this match. We knew that we were likely the better side, but knew anything could happen. If we won, we went through. Loftus is normally a rugby stadium, but it had decent sight lines for soccer. The US almost gave up another early goal, but were lucky not to concede. After that, the US dominated, but couldn’t finish. The refs mistakenly disallowed another US goal, but the fans were not deterred. There seemed to be a bunch more US families and women at this match than there had been in the past, but that didn’t stop the crowd from being incredibly loud the entire match.
We thought we were going to score the entire match, but it came down to an amazing throw from Tim Howard, a great run by Donovan, a good cross by Altidore and then an awesome finish by Donovan in the 94th minute. You know when I said that the 3rd US goal in the Slovenia was the loudest I’d heard a stadium? This completely topped it. It was complete pandemonium. Beer was flying everywhere, people were screaming, some were crying. There were still a few minutes to play, but I don’t think any Americans remember what exactly happened. If you’ve seen the video of people around the world celebrating the US goal, it was like that but even crazier. Everyone was so happy that Donovan scored and we won the group. I don’t think I could feel like I did at that match for any other sporting event.
Celebrating USA/Algeria
Green Point Stadium, Cape Town, June 23, 2010 – Netherlands vs. Cameroon
Green Point Stadium looks amazing from the outside, but wasn’t completely finished on the inside. I sat on the center line near the top of the stadium and my entire side of seats were temporary bleachers that didn’t seem all that safe. I was probably 70 feet up and to my left there was a huge drop off protected by a small fence.
The Dutch are great supporters and painted Cape Town orange. There seemed to be a bunch of white South Africans who were supporting the Netherlands as well, which added to the atmosphere. Arjen Robben is a joy to watch, as was Samuel Eto’o. As soon as Robben came into the game, he immediately took over and created the winning goal. Although both teams didn’t have anything to play for, they both clearly wanted to win and it was a fairly entertaining match.
Green Point Stadium was the most fun to go to because it is surrounded by shops, bars and restaurants along the Cape Town waterfront. While not the best looking stadium compared to Durban, Green Point was the total package and was more fun than most of the places we went in Germany 2006.
Royal Bafokeng Stadium – Rustenburg June 26, 2010 – USA vs. Ghana
I was back in Rustenburg for the USA/Ghana match after a crazy flight/sleep in the airport. I met some friends, Andy and Chris, in the airport and we ended up back at Lucky’s and then onto the game. Bob Bradley inexplicably started Ricardo Clark in the midfield and Robbie Findley at forward and both didn’t do well. Clark was horrible and gave away the ball dribbling in his own defensive third, leading to Ghana’s first goal. He was promptly subbed off. The atmosphere was electric again. 90% of the fans were rooting for Ghana and the rest were from the United States. Anytime Ghana did anything well, the vuvuzelas would go crazy. If we had to lose to any team, I’m glad it was an African side like Ghana.
Overall, the soccer was great, the atmospheres exactly what you’d expect at the world’s largest tournament. In the US, everyone’s asked me about the vuvuzelas. At the matches, I actually really liked them, besides for the fact that you couldn’t hear fans singing. The vuvuzelas brought the matches to another level and weren’t annoying. They were much worse on TV.
The South African fans were incredible as well. They danced, sang and had a great time, even at the games where they weren’t playing. They were also quick to help and offer suggestions on where we should go and what we should do while we were in each city. Each city felt safe and there were hundreds of police officers around each stadium to make sure that people knew it. For all of the hand wringing in the media beforehand, South Africa staged a magnificent World Cup and were great hosts. I just wish the US would have gone farther.
The Bad
The only drawbacks that I encountered were caused by FIFA. FIFA is one of the most corrupt organizations in the world, along with the IOC, so many of the things that went wrong were caused by greed or outright corruption.
The first problem caused by FIFA was in the ticketing. FIFA categorizes tickets in the stadium into four categories, with 1 being the best and 4 being the worst. This world cup, category 4 could only be sold to Africans. The problem was that in many cases, the $160 category 1 tickets were not any better than the $80 category 3 tickets. My best seats were category 3 for USA/Slovenia, Category 3 for Spain/Switzerland and Category 2 for Netherlands/Cameroon. The worst were category 1 for Germany/Australia and the category 1 tickets in Rustenburg were no better than my other category 3’s. Since you can only choose a category ahead of time, not actual seat locations, you can get stuck with expensive seats that aren’t any better than the cheaper ones.
There were also large swathes of empty seats for many games, including two of the USA matches. FIFA claimed that it was because people bought tickets and then didnt show up, but it was entire sections that were open, which doesn’t make any sense. I think FIFA’s ticketing system was screwed up and didn’t show how many tickets were really available. For USA/Slovenia, people were searching for tickets on the street, but there were 4-5 sections available in the stadium. FIFA should have made sure that locals got unsold tickets to make the atmosphere even better. It was a huge missed opportunity for FIFA to spread the game to people who otherwise couldn’t afford it and improve the atmosphere in the.
FIFA showed its greed by not allowing resales of tickets. The only way you could legally resell tickets was to use FIFA’s own system that cost 10% to sell and an extra 10% to buy. If you had already printed your tickets, you couldn’t use the system and if you bought through supporters clubs, you couldn’t legally resell tickets. If you were like our group, and many were, you had to buy tickets months in advance. One person dropped out of our group, so we had 1 extra ticket for all of our matches. According to FIFA, we weren’t allowed to resell it anywhere. It caused fewer people to get into the stadium and higher prices outside because people were scared to get their tickets cancelled by FIFA if they were caught selling.
A few days before the round of 16, FIFA cancelled hundreds of tickets that had been “illegally” resold, causing the buyers to be screwed and the sellers to keep the money. That’s just dumb and shows FIFA only care about the money, not the fans. FIFA also wouldn’t let people give tickets away in sweepstakes or make their own travel packages. All were deemed illegal by FIFA.
The second problem was FIFA’s overarching power. South Africa (understandably) rented themselves out to FIFA for the tournament. They acquiesced to new laws demanded by FIFA like “outside companies advertising inside the stadium is a crime.” This “law” led to 40 Dutch women to be arrested and charged with a crime for wearing identical orange dresses to support a brewery. FIFA also banned any local food from the stadium, so we were stuck with Coke, Budweiser and pies by a large company. People decided to smuggle food into the stadium instead. I understand that the sponsors need to make money, but jacked up prices (by South African standards) and poor food quality rubs people the wrong way. FIFA also brought logistics companies into the country to care for the teams. They used “blue lights” which were law-exempt cars that traveled at huge speeds all over the city to shuttle dignitaries all over the place. They were dangerous for everyone else involved.
I also talked to one of the people who FIFA contracted to manage these people and he said that FIFA covered up all sorts of problems created by teams, delegates and others involved with FIFA. I heard about a team getting caught with lots of cocaine, but it never made the media. Another story was that a FIFA delegate stole about 10k from a player, but that was swept under the rug as well. I’m sure there were a ton more problems that never made the media, but it’s pretty sad that one organization has all this power.
I also really dislike that FIFA uses politics to choose referees. As you can see from some of the dubious refereeing decisions, the best referees are not all in South Africa. The referee from Mali who blew the USA/Slovenia match is likely not one of the best 16 refs in the world. Just pick the best 16 referees in the world, no matter where they’re from. And let’s try to get some sort of replay for the next world cup. It really wouldn’t be that hard!
The last and probably the biggest problem was MATCH, the official tour/accomodation partner of FIFA. MATCH was the company that partnered with FIFA to “help” people find accomodation, flights and car rentals. All MATCH did was buy up all of the reasonably priced hotels, guesthouses and B&B’s and then tried to resell them at 4-5x their price on the FIFA website. I felt bad for the people who spent huge amounts of money on what would have been normally priced accomodataions, but that’s not the bad part. Since FIFA bought up all of the reasonable places and the places that normal people could find online, many people didn’t come. FIFA got greedy and it resulted in at least 50k people not coming to the world cup. The best part? MATCH and FIFA didn’t sell out their accomodations, so they turned back a bunch of rooms a month before the tournament, too late for people to book flights. In pretoria, MATCH has reserved an entire guesthouse of 40 rooms, right across from the stadium. FIFA was trying to get $350 per night per person on their website. We called the place directly and they booked us in at $100 for the night total because there was only 1 other person staying at the guesthouse who had booked through FIFA. Instead of an awesome guesthouse filled to the brim with world cup fans, it was only us and the one guy who paid the $350. What a scam.
South Africa did a great job putting on the tournament and I thoroughly enjoyed myself. I just wish FIFA would hold up their end of the bargain, become more transparent and make future tournaments even better. I’m not holding my breath.
I’m on my way to South Africa for the World Cup right now with my friends Andy and Katie. This morning, we flew out of Milwaukee to New York and will be exploring the city for the day. Late tonight, we fly out of NYC and head to Dubai, where we catch a plane to South Africa. We’ve got tickets for USA vs. England, USA vs. Slovenia, USA vs. Algeria and Spain vs. Switzerland and we hope to be able to catch Brazil vs. Ivory Coast and Cameroon vs. Netherlands.
We’re going to Johannesburg, Cape Town, Rustanberg, Durban and hopefully Kruger National Park for a safari and we’re all excited. It’s my first trip to Africa and I’m hoping its as amazing as World Cup 2006 in Germany was. I’m confident that the South Africans will pull off a great tournament, just like the Germans did in 2006.
I’m not really sure what to expect out of the US squad. I think the US got a fairly easy group compared to what they could have gotten, but there are not easy teams in this tournament, save North Korea. I’m thinking the US will advance and most likely lose to Germany in the round of 16. I’m looking for Landon Donovan to continue to build on his breakout performance in the 2009 Confederations Cup and his loan stint at Everton and really show that he is a world class player. Clint Dempsey will continue to shine out on the left flank like he has for Fulham.
With Charlie Davies not fully recovering from a deadly car crash, the US is really thin at forwards. Luckily, three previously unheralded forwards seem to be hitting their stride right at the right time. Look for big things from Hurcluez Gomez and Jozy Altidore. The most improved player from qualifying til now seems to be Jose Francisco Torres. I think he can have a breakout performance at the World Cup, attracting attention from clubs in the best leagues in Europe.
The biggest problem for the US is at the back. Tim Howard is a world class goal keeper, but the defense in front of him looks shaky. Oguchi Onyewu looks amazing in 2009, but suffered a knee injury in qualifying. He doesn’t seem fully recovered. Green Bay’s own Jay Demerit looks solid as the other center back, but the outside backs will have trouble with fast players like England’s Aaron Lennon and Wayne Rooney.
The African sides look to be really strong this year. Ivory Coast looks really good, but they have a really hard group. Cameroon and Ghana looked solid, but both are suffering from injuries and the hosts, South Africa have a decent squad that will be boosted by the home support.
So who’s going to win it all? I’d love to see Spain win it all, but I don’t see it happening. I think they’ll make a deep run, only to come up short. Argentina is an easy pick since they have arguably the best player in the world in Lionel Messi. As Arsenal’s coach said after getting lit up for 4 goals, Messi is “like a video game player.” Ultimately I can’t see Argentina taking it because they have a moron for a coach in Diego Maradona. England, Germany, Portugal, France and other traditional powers look to be weak, but you never know when a team will catch fire, like Germany and France in 2006. I’m going to go with the safe pick and choose Brazil, even though they left Ronaldhino at home.
I can’t wait to be in South Africa and hope to write a few posts during my down time, but I can’t guarantee anything. I have 2 posts scheduled to post while I’m gone, but any new posts I write in South Africa will be about South Africa. I’ll be back on June 30th!
It is incredibly easy to start a business and find funding in the United States compared to the rest of the world. You can start an LLC in Wisconsin in less than 10 minutes, compared to up to over year in some developing countries. The US has the deepest and most well developed network of Venture Capitalists and Angel Investors anywhere in the world and if new businesses are looking for angel investment, they can obtain it with minimal paperwork. According the the Kauffman Foundation, over the last 25 years, “angel investors were responsible for up to 90 percent of the funding these businesses received.” This angel funding allowed these startups to create jobs and bring innovative ideas to the marketplace. In 2008, angels invested $19.2 billion in over 55,000 companies.
The US innovation and “job creation engine” is the envy of the rest of the world. So what’s the best way to destroy this engine? It sounds ridiculous, but it seems like the politicians who drafted the Restoring American Financial Stability Act of 2010 asked themselves this question when they were writing the bill.
Hidden inside the 1300 page bill are a few paragraphs that have the potential to kill job creation and innovation in the USA. Currently, new businesses can raise money from Angel Investors fairly easily if the investors meet a few criteria. Investors must have at least $1m in net worth or make $250k in income per year. If your investors meet the criteria, they are considered Accredited Investors and startups can accept their money with a simple 5 page informational filing that goes to the SEC. Startups can potentially raise hundreds of thousands of dollars in weeks if they have an amazing idea and find the right investors.
If this bill passes, it will raise the accredited investor net worth criteria to $2.3m in net worth or $450k in annual income, eliminating close to 60% of the potential angels in the USA. I’ve raised close to 500k in angel investment between both of my businesses and we wouldn’t have been able to accept ANY of it if these rules were in place. If anything, the rules should be changed so that the net worth requirement is lower. We allow anyone to invest in stocks, bonds, options, futures and other exotic investments, but not in new businesses. Says John Maudlin:
Why should 95% (or maybe soon to be 99%!) of Americans, simply because they have less than $1,000,000 (or $2,500,000?), be precluded from the same choices available to the rich? Why do we assume those with less than $1,000,000 to be sophisticated enough to understand the risks in stocks (which have lost trillions of investor dollars), stock options (the vast majority of which expire worthless), futures (where 95% of retail investors lose money), mutual funds (80% of which underperform the market), and a whole host of very high-risk investments, yet deem them to be incapable of understanding the risks…”
The other change in the bill is even more damaging. The bill requires that all startups register with the SEC and implements a 120 day waiting period so that the SEC can approve new businesses. Startups move in minutes and hours, not weeks and months. Entrustet has been live for just over 1 month now and we’ve gotten real users and made real money. A 120 day waiting period would kill companies before they even get off the ground. But the waiting period isn’t even the worst part. Registering with the SEC would cost up to $100k in legal, accounting and other fees, not to mention lost productivity when startup founders could be working on their idea instead of battling the government for access to capital.
And what if a small project like Facebook started to grow rapidly? It could take weeks to draft all of the legal paperwork, plus another 4 months of waiting around on the SEC. And this is assuming the SEC doesn’t get backed up like the US Patent Office. I also don’t want some government bureaucrat processing SEC applications while I am hurting for investment. Facebook could have very easily died in Zuckerberg’s Harvard door room if he had to wait 120 days for SEC approval before getting his first round of funding. I have no doubt that if this bill passes, the waiting period will be over 200 days within 2 years. After all, it takes an average of 34 months for the patent office to review new patents.
The last change in the bill devolves some of the power to regulate angel investors to the states. This change means that instead of one filing, every state will be different. For Entrustet, we have investors in multiple states. We would have had to file new paperwork in each state if the rules change.
So why is Congress attempting to change the one part of the US economy that is creating jobs? The US currently regulates angel investors as if they were investing in hedge funds. We do need more regulation on hedge funds, but the problem is that angel investors are getting caught in the net. This is a huge mistake.
There is a fundamental difference between hedge funds and startups. While both are risky, hedge funds generally shuffle money around to make money and don’t create much, if any, value, whereas startups spark innovation, create jobs and improve society as a whole. Startups use the money to create new jobs and innovate. Think betting that the South African Rand will fall in value vs. funding the next Google. Here’s Maudlin’s solution, which I agree with 100%:
Here’s what needs to happen. Get rid of the disastrous rule requiring filing with the SEC. It makes no sense and will cost hundreds of thousand of jobs and divert the SEC from their main tasks. Angel investing has not been a problem to date, and there is no need to fix something that is not broken.
Second, if you really think we need to raise the accredited investor limits, then carve out an exemption for venture capital.
And keep the clause that gives startups federal exemption.
And, if you really want to create jobs, then cut capital-gains taxes on new ventures and angel investing to 10% or less. Let’s create some incentive to get America moving!
If passed without any amendments, these rule changes will be a huge detriment to the US economy. They are short sighted and attempt to protect us from ourselves. By lumping angels with hedge funds, the government is painting with a broad brush and there will be all sorts of unintended consequences. This issue is not a republican vs. democrat issue either. Everyone should want to make it easier for startups to create new businesses and new jobs, especially in this economy. This bill does the exact opposite and would be terrible if it passes. I hope that there is enough negative publicity so that this part of the bill never makes it into law.
Do you think this bill will pass as is? Do you think hedge funds and angel investors should be treated the same way? What do you think will happen in your own startup?
