ENTREPRENEURIAL FINANCE: THE CREATORS' SOLUTION

‘’We’re never in lack of money. We lack people with dreams, (people) who can die for those dreams’’---Jack Ma  

My very first introduction to the subject matter of economics came four decades ago, precisely as an 8^th-grader in Government Secondary School, Twon Brass, Nigeria. Mr Joseph Afolayan, who was on his one-year mandatory national service (NYSC) deployed to my school, had taught us the meaning and scope of economics, not leaving behind such concepts as production, and demand and supply. I grew up loving demand and supply, and to me it was the very meaning of economics. First cut, they have always said, is the deepest. Yet I never, to this day, forgot his take on entrepreneurship as that factor of production which organises the others (Land, Labor, and Capital) for the cause of production.

As I grew older in this and other related body of knowledge, perusing some available literature I find it difficult not noticing a recurring and now popular tone; that of entrepreneurship (even from a global perspective) not growing as fast as it would have if needed funding was available. Here, one gets the assumption that Land, Labor, and Entrepreneurship all exist in comparably needed quantities over Capital (which I will reduce here to financing). The snag in the development of entrepreneurial efforts therefore lies in the unavailability of needed financing--- a chorus which is not only been recently sung, but which also doesn’t appear to hearken to the pause/mute button pretty soon.

Often, the point made is that all manner of conventional banking is not entrepreneurship-friendly. Banks either outwardly refuses to finance emerging entrepreneurial efforts or charge business-unfriendly interest rates. The latter has been the genesis of calls on governmental bodies to do what the banks have thought economically unwise to do. Government, after all, is supposed to have a better sense of economics than conventional bank operators. In Nigeria, for instance, the federal government’s operated apex bank sometime announced its commitment to emerging entrepreneurial efforts to the tune of 220bn of its local currency. This is in spite of the very high likelihood that 10 -15 years from that announcement/disbursement the entrepreneurial community will be asking, where are the companies? Where are the products and services? And where are the entrepreneurs? 

If there’s a commonly accepted parlance, as far as emerging entrepreneurial efforts (start-ups) it is that which puts the probability of success of these efforts at not higher than 10%. Bankers are aware of this statistic hence their suit-wearing-risk-fearing posture would not allow them finance entrepreneurial rookies. It is the one reason for some of today’s great companies such as Apple, Google, Amazon, Facebook etc not getting financed, in their early days, by even the great banks in the United States of America. 

Entrepreneurship is risk-taking. LinkedIn cofounder, Reid Hoffman –- one who has been there and done that best captured this risk-taking persona of the entrepreneur when he defined the entrepreneur as ‘’someone who jumps off a cliff and builds a plane on the way down’’. It is generally not known that people wear clean suits, designer ties, and brand-named pair of shoes just to ‘’jump off a cliff’’, meaning that a banker cannot figure out the creative DNA behind cliff-jumping before the jumper establishes reliable ‘’earning records’’.  

Venture Capitalists, conversely, do have first-hand understanding of what the bankers don’t get ---an understanding of the creative DNA which often leads to bringing about the ‘’earning records’’. VCs understand also that entrepreneurship is a risky engagement which must be encouraged; they understand that this risky engagement can fail yet they go ahead to encouraging them. Michael Moe, cofounder and partner at GSV Asset Management (a Silicon Valley based VC) summed it up by saying, ‘’let’s give you some gas money for your tank and you put your foot on the pedal and go as fast as you can’’. 

Venture Capitalists do what they do better than the banks not because they understand the world of finance any better than the banks but because they are either peopled by ‘’creator-types’’ or those who have become creator-types by association. VCs, therefore, can recognise the creative DNA embedded in an entrepreneurial candidate far better than the banks. It is this DNA Peter Thiel saw in Mark Zuckerberg when the former invested $500,000 in Facebook’s very early days, and $20, 000,000 in Elon Musk’s Spacex, also in its early days. This was not any different for Masayoshi Son, cofounder and CEO of Softbank who invested in Alibaba’s (the world’s biggest e-commerce platform by volume) early days not because of the ‘’rightness’’ of Jack Ma’s business plan but (according to Masayoshi Son) the ‘’fire’’ in  Jack Ma’s eyes.

Masayoshi Son had said about himself thus, ‘’I don’t care about the sort of things that will bring in chump change over the next two or three years. I think I’m better than others at sniffing out things that will bear fruit in 10 or 20 years while they’re still at the seed stage, and I’m more willing to take the risks that entails’’.

It is simple, bankers and business plan artisans (for the most part) are not risks-takers; they don’t understand and cannot recognise the creative-risk-taking DNA and hence cannot participate in financing entrepreneurial talents in their early days. When they do (as in less developed parts of the world) they only end up assisting with how to ‘’distribute’’ public funds often based on some formula other than that of promoting true entrepreneurship.

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Edwin A. Ngeri

Edwin Ngeri strongly believes that God created man in his image for man to be able to create like him (God).

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