07 Mar Raising Capital
I am optimistic about the future. I think the world will grow dramatically (especially poorer nations) and times will improve–especially for those at the lowest levels. If you make 1 dollar a day, it is fairly “easy” to make it to 4 dollars a day. Usually, it just takes some skills, or seeds, or a new piece of equipment. A few levels above it is little different–where a couple of hundred dollars in capital can launch a family on self-sufficiency and growth for a generation if deployed correctly–and with a little guidance.
The process of paying for that capital is the blood of business. Whether it is borrowed as loan or bond… or invested by friends and families… or the neighborhood, it is the good application of capital that makes growth possible. It takes skill to use capital wisely–and that skill comes from training and learning. It takes time–and is always risky.
“Infrastructure” is the rails on which the trains of business run. Literally roads, electricity, water and sewage, and many other elements make up our capacity to move goods to markets and people to services. Now we must also include cell phone nets, medical services, legal and accounting infrastructure, etc. to have even the basic set of what is required.
The last 200 years more or less have been an exercise in learning how to move capital and build infrastructure in such a way that we can keep the economic engine going without it bursting out in flames or flooding from too much fuel. Societes will make mistakes as we always have. Investment has risk. Corruption is always found near fast moving money, but the main risk is that management and policy makers (and sometimes the consumers themselves) plan badly and things go wrong.
In order to finance great projects, capital concentrated in cities and nations that had the capacity to host huge pots and vats of concentrated money–we called these, somewhat uncreatively, money centres. London is one. New York another. Singapore, Chicago, Dubai and Hong Kong round out what is probably the top tier. If not, maybe Amsterdam, Paris, Tokyo, or Shanghai deserve to have the bragging rights. It is hard to keep up. They compete in their own way and they will remain prominent for a long time to come.
But in the last 25 or so years of mainstream Internet, something new has begun to happen. Capital accumulation is spreading out from a room or building in a big city to a computer screen or even a phone. No longer are brokers and bankers always central to the sale, but people are taking on their own positions in small amounts through what amounts to “crowdfunding” — a group of people deciding quite independently but in mass action to make something happen. This direct investment is changing the game. It is leaving behind institutions and blazing a new sort of market that lives on the Internet–with new risks and new rewards.
Another feature of this distributed financial system–of crowdfunding–is the concept of a cryptocurrency. I don’t much care for that name, and it has worn out its usefulness, but the point is that there is a new game in town.
Someone once said anyone can invent a currency, the trick is to get it accepted! Well, cryptocurrencies are somewhere between shares of stock, coupons and promises to your uncle you will return his investment in your “idea.” They are at once very simple and yet can be quite complicated in their technological implementation.
These new “tokens” are a logical progression of technology and are built on a fundamental widget called a blockchain–which sounds like a piece of metal, but which is actually just software that runs on a number of computers talking to each other and recording events that people pre-agree will be met with an action–like paying some money. Bitcoin was the first of these. Now there are hundreds–perhaps a few thousand. Soon there will be 10s of thousands of these tokens in all likelihood. Perhaps at some levels they will replace stocks and brokers and certain functions of investment banks and banks in general. It is a big change. And those who underestimate it are probably the same people who said Facebook could never be a big company and Apple made toy computers for school kids.
I believe in this new technology wave of distributed capital raising for a couple of different reasons. First, it allows for people to get in the game without paying outrageous fees to firms that need to support a set of giant skyscraper based offices with a mass of suited executives who push more numbers around than anything that amounts to productive work in the sense of making things happen. Don’t get me wrong, the world is well-served by portions of the financial industry in many ways, but too often the system is bloated and skewed to those who have billions not those who have tens. I think this is changing meaningfully through this new technology and there will be starts and fits.
And as it changes, the capacity to build infrastructure in a place like Africa is reborn afresh in these new methods. We of course need to remember the lessons that have led to regulations, but we need to leave behind the bloat and waste so that a new set of possibilities can be born. New energy sources, new transportation methods, new agricultural communities and new thriving populations. We are part of that. It matters to us. That’s why we are active in the crowdfunding and cryptocurrency space. We will remain so. Mistakes will be made, but I feel confident this is a big part of the future.