Small Business Funding: the Internet to the Rescue?

15 january 2013

Small business funding, what to do about it, how to create a system to supply it, is an argument that’s been going on for most of my lifetime. Way back when I was in high school one of our economics texts was the Wilson Report which addressed this very point. How are small businesses to access the capital they need?

Sadly, the conversation over the intervening years hasn’t really got very far. Here’s a comment in one of the newspapers today:

When it comes to capital, small businesses complain that banks aren’t lending enough.

Sigh, it’s not debt that small companies are short of. It’s equity capital. How to get equity capital to small companies is the problem we need to solve. It’s also something the UK is extremely bad at. We used to have regional stock markets and rather well developed networks of investors. These have now all been nationalised: not in the sense that they are part of government, rather, that we now seem to have one national system of equity capital allocation. Regulations and paperwork requirements are all set on a national scale as well: it’s just not cost effective to try and use these systems to raise a few hundred thousand pounds to get an idea started off.

Not all is gloom and doom though. I have a feeling (and no more than that) that the internet is about to come riding to hte rescue. Several people are experimenting with crowdsourcing of funds. One I know of is Crowdcube*. Essentially, it’s the next step in disintermediating the financial markets, something the ‘net does so well. We can all buy and sell stocks now for peanuts, we’ve disintermediated away the full service stockbroker. It’s possible, although most certainly not certain, that the same will happen to VC or angel financing. Which would mean that finally, we’ve a method of getting equity financing to small firms, those companies who are ultimately the source of jobs growth and of economic growth itself.

 

* I should make a declaration of interest here. I’m working through the implications of using Crowdcube myself to fund a company in the rare earth metals space. As yet I have no business relationship with them, just to let you know that I might in the future.