Malcolm Evans in his excellent blog - Corporate Finance North West - has made a great point. And so I have popped it below.He was chatted about:
"the seemingly endless overhang of investment funds in the region – VC, PE, mezzanine, banks saying they want to lend, the RGF, the BGF……goodness you’d think that potential growth companies could gorge themselves in a region flowing in milk and honey. (Not something we have seen at goAugmented - the independent Augmented reality development company I have been working with.)
Somehow, through, all this seems to work like the amusement arcade penny falls – money accumulates and accumulates but precious little of it ever seems to tumble out.
And I am absolutely convinced about what is going on – it is a situation which has long been evident but which has been radically heightened post-Credit Crunch.
Just about all of the tides of capital are looking to drip feed super-performance. By this I mean that they will only cherry pick the prospect of exceptional returns over relatively short periods. That disqualifies the vast majority of the business world, which I categorise as performance. I would estimate that some 2% of the SME market comprises super-performance and 98% performance.
Just as debt is an inappropriate funding vehicle for financing the development effort of a pre-revenue digital startup, so venture capital will also likely be inappropriate for replacing plant within a long-established componetry supplier embedded deeply within multi-national supply chains.
There are many such subtleties – and, indeed, thousands of funding applications out there that are sheer rubbish! But the trend is that just about everything sub the bottom end of super-performance, or at least the very top end of performance, is too often no longer getting a look-in.
We have become very poor capitalists – possibly the worst at any time since the Industrial Revolution. State initiatives tend to end up mired in the “mushy middle” of public sector bodies which appear more and more to be creeping back to swallow up cash, if, for that matter, many of them actually went away in the first place.
The banks have decidedly – and often by their own admission – undergone a revised risk profiling. Whilst the question used to be “is this business and this person capable of repaying this loan”, lending assessment has now entered the realms of super-performance. Just being good enough in business to service loans is no longer deemed good enough. But performance is enough – it is what makes the economy go round. The banks don’t do this very much anymore – we need to find ways in which performance is validated with appropriate investment.
We need new funding mechanisms – and we need to be precise, practical and determined about it. There was talk today about regional business investment banks.
That’s great – but we will need to be extremely vigilant and determined lest all the investment money continues just to feed the penny falls operators."
Myself I am wondering if Malcolm has every heard of the likes of USA crowdfunding portal Kickstarter which seems to be doing rather well.
It is interesting what this all might mean for finance. As Fred Wilson from America rightly points out here... in Gigacom.
And I think it is this crowdfunding route I am going to go down with for my next venture in mobile marketing - Massmob - a platform for mobile game developers for the business to business market place.
The question is.... is it a good idea?
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