No doubt there was a time when it was possible to go into the Petroleum Club in Houston and find some good old boy whom you had known for many years, talk to him for a while about some oil-related business idea that you had in mind and convince the guy to loan you the $8 or $900 million needed to develop that idea. Perhaps that sort of thing still happens? I suspect, though, that it doesn’t work like that any more – we are now in the day of the analyst who is the unavoidable link between the person with the idea and the person or organization with the money. The analyst is: youngish, about mid-30s to early 40s, intellectually bright and quick on the uptake of numbers, well qualified academically, an absolute magician with spreadsheets and the laptop in general, and knows next to nothing about business. That the analyst knows nothing about business is an advantage, negating any possibility that subjectivity may just sneak into the analysis, and the job is to run the numbers. If the numbers don’t work to the analyst’s satisfaction, then whatever the person looking for the money proposes is not going to go any further.
The question here is, how can some of that money that the wealthy people of the world have [Bill Gates $75 billion,
Warren Buffet, and in the Philippines, Henry Sy Sr. $12.9 billion, and Lucio Tan, $4 billion] find its way into good business ideas that will create jobs and grow the economy, particularly in the less developed world? “Richies” [rich people]may give some of their vast wealth to investment bankers with instructions that they require a certain return on the money. But ooops, we are at the mercy of the analysts again, for they are the tools of the investment bankers. One good idea that gets the entrepreneur straight to the potential investor is the TV show Shark Tank [USA] or Dragon’s Den [UK].
The entrepreneur gets three minutes in which to pitch his business idea and the money he needs to get it going to a panel of multimillionaires who are willing to put out some cash to support business ideas which appeal to them.
Apparently the success rate in actually getting the richies to commit the funds requested is less than 50 percent. But hey, that’s pretty good! The entrepreneur just has to make sure that he gets onto the show!
There is so much talk about the massive gulf between the rich individuals of the world and the poor. According to Oxfam, eight individuals [Bill Gates, Warren Buffet, Michael Bloomberg, etc.] have as much wealth as half the world’s population, and that wealth keeps increasing, Bill Gates fortune has increased by 50 percent since 2006 despite his efforts to give much of it away!
But you can hardly expect Bill Gates to wander around Tondo in Manila looking for people who are skilled auto mechanics in order to set them up in business, nor wander around the souk in Sana’a, Yemen looking for knife makers to support a knife-making business. There are many highly skilled people around and there are many good business ideas that just need a bit of money to back them.
Crowdfunding is another way in which ideas can be marketed for financial support. Common between both Dragon’s Den and Crowdfunding is the small amount of information that is given to the potential investor in order for a decision to be made —three minutes in Dragon’s Den. The amounts of investment sought can be significant, $1 million to $2 million for 20 percent to 25 percent of the company seeking funding.
If investors [wealthy people]can, in fact, make up their mind to invest significant sums in start-up businesses on scant information and in a very short time, why is it necessary for investment bankers who are seeking out the right investment for their clients’ wealth to study the business ideas presented to them in such depth and with such analytical rigor?
It looks as if the days of people’s ability to make investment decisions based on personal knowledge of the guy planning the venture, combined with an intuitive feel for whether or not the venture will be good business, are now behind us, except in TV game shows. Other ways need to be developed to facilitate the transfer of wealth from the richies to good business ventures. Then things may become better for everybody, and rather than just gasping in awe at how much money some of these people have, we may be able to gasp in awe at how much these people have helped to make the world a better place.
Mike can be contacted at email@example.com