What is the first imagine that comes to mind when you think about the word entrepreneurship?
I see the sea–the large expanse of water–that our seafaring ancestors looked to as they sought greener pastures. Another, perhaps even more modern image may come to your mind. But to me, it begins with that first step into an unknown world; from which it is not possible to ever look back.
Entrepreneurs begin by taking a leap of faith–not ever knowing what awaits on the other side of the shore. Entrepreneurship takes root at the bottom, not at the top. In the ages of yore, entrepreneurship was what allowed poor people to lift themselves and their communities out of poverty through their creativity, tenacity and determination.
The entrepreneur usually needs an investor or a lender. Credit markets were originally created to serve entrepreneurs and provide budding business owners with capital to start or expand their operations. Entrepreneurship and financing have always gone hand in hand. It was a system that benefited the entrepreneur, the investor or lender, as well as the community that needed those businesses.
We, however, have to accept that this has not been the face of entrepreneurship for the past few decades. We can even attribute it to the events of the 1970s when a few main corporate players came to dominate the entrepreneurship and credit market. This, in turn, led to a continued economic focus on wealth monopoly rather than wealth creation. After wealth has been created, it needs to be distributed equitably. The fact remains, however, that we have to bake the pie before we can even dream of distributing it.
Lending, by its very nature, ensures that surplus funds are channelled into the economy for a greater purpose. Debt is the lifeblood of the modern economy. To create a financially successful life, it’s nearly impossible to avoid credit, in one form or another. We need credit to purchase a home, start most businesses, pay for our college education, buy a car… and the list goes on. Most of us do not have that amount of cash lying around.
But then again, have we ever?
Imagine you are a farmer in Mesopotamia some 4000 years ago. You need to purchase some seeds (the modern equivalent of seed money) as you’re expecting a harvest (the modern equivalent of a return) some six months later. You also need to feed and clothe your family between now and the harvest. Oh and by the way, you also need to pay taxes.
You need to find someone who will lend you some seed money on the promise that you will repay once the harvest comes through. This is how people became borrowers and lenders. Some of the earliest known writing of any form is on fired clay tablets for the purpose of recording loans. Back then, however, the interest charged seems to be fixed–regardless of the length of time to harvest.
Many of these ancient peoples even used food as a way to pay their debts. With the promise of harvest in the spring, farmers would borrow seeds and then share their crops to pay their debts. Not all borrowers were farmers, of course… Some were traders who needed capital for their business.
The financiers of Mesopotamia, however, were not bankers. Rather, they were closer to modern door-step lenders who used their own savings to lend others… and could potentially get heavy-handed if people didn’t repay.
Whether you, as the entrepreneur, decide to go down the path of debt or equity to fund your business, the time value of money is the widely accepted conjecture that there is greater benefit to receiving a sum of money now rather than an identical sum later on. It is among the reasons why interest or a return is paid or earned. It compensates the investor or lender for the loss of their use of their money.
By investing in you, investors are willing to forgo spending their money now–only if they expect a favourable return on their investment in the future.
It is, for all intents and purposes, a partnership. The business cannot grow or bloom without an investor; and without the entrepreneur, lenders would be sitting on surplus funds that are, in essence, doing absolutely nothing in the economy.
So if you know of a squirrel out there who has excess funds to spare, perhaps it is time dig deep and tap into the excess resources that have been hidden away from you.
May the hoarders of the world realise that it is time to take a risk, step into the ocean and put that money to good use to serve someone other than themselves.
6 thoughts on “The Entrepreneur and The Financier | An Economic Partnership”
Financiers should become a bit selfless while financing entrepreneurial ventures because they are bringing something new to the world and someone’s dreams are attached to it as well.
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Very interesting article! Thanks for posting.
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Thank you for this incredibly informative post!
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