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Can a Company with No Assets Attract Investment?

Posted By Charlotte Aguilar-Millan, Monday, June 3, 2019

Charlotte Aguilar-Millan checks the possibility of attracting investment in the Information Age through her sixth blog post for our Emerging Fellows program. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

The 21st Century has long been coined The Information Age. There has been a dramatic growth in the use of information technologies. A benefit of the new technologies is that there is a lesser need for tangible assets. Companies can now be successful with only the use of a laptop and an innovative idea. However, for most companies, whether they have assets or not, funding is required at some point within their lifecycle. How has funding changed with the rise of companies with no assets? Take Facebook, Alibaba, Uber and Airbnb as an example. They each do not hold on their balance sheets the assets from which they generate revenue.

 

A small to medium company (SME) can see many routes to growth through funding, but how many of these are open to companies that do not hold assets? The quest for funding of a company with no assets is likely to contain many refusals. The most obvious route for an SME is to take out a bank loan. This, however, requires collateral which a company with no assets does not have. A bank manager cannot reclaim the loan if the SME defaults as there are no assets to sell off. This provides a risky investment for banks. In the US, for example, only 1 in 4 small business loans applied for were accepted in 2018.

 

The two ways in which a company can raise cash is through debt or equity. Therefore, the next option is to look at listing, be this on the main stock exchanges, FTSE 100 for example, or exchanges designed for smaller companies such as AIM.

 

However, in order for a company to list on an exchange, they will likely need an appointed Nominated Advisor, financial and legal assistance. All of this requires cash which is what the company with no assets is seeking to find; not what is already has.

 

An alternative to the company with no assets attracting investment is for their owners to take out personal debt to put into the company. This could be in the form of taking out a mortgage against their personal home. Not only is this route extremely risky; if the company fails then they might end up homeless. This also is only an option when the owner has a home without an existing mortgage. Within the UK, the average age of first-time buyers were 31 years old in 2017 nearly 10 years older than a generation ago. 

 

A final way in which a company with no assets can attract investment is to speaking to that long lost rich Aunt. This itself speaks of rising inequality within the economy. The Information Age has enabled entrepreneurs to discover their vision without the high purchasing costs of tangible assets. However, finance has not kept pace.

 

Finance is restricting the mobilisation of companies with no assets. If the SME owner is not already established with a pot of savings or a house which the banks are willing to re-mortgage, growth can be limited. To the question, can a company with no assets attract investment, the answer is dependent upon the Company’s socio-economic background. This inequality is limiting innovation. 

 

© Charlotte Aguilar-Millan 2019

Tags:  economics  finance  investment 

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Will governments lead or follow finance’s future?

Posted By Alex Floate, Tuesday, May 28, 2019

Alex Floate, a member of our Emerging Fellows program examines the governments’ potency in leading finance futures through his fourth blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.

           

Solving big problems has never evaded the human spirit. Ferocious tigers and bears led to spears and group tactics. Episodes of famine led to granaries for storing against future hunger. Following that came the domestication of the cat to protect against rodents feasting on the stockpiled bounty. In just the last century we have overcome distance with advances in communications, heavier than air flight, and even leaving earth’s atmosphere. As problems have become bigger in scale and cost, we look to our governments to take the lead on solving them. That we can solve big problems and overcome the constraints of our environment is not in doubt; that we have the will to do so is.

 

Continued financialization may create a dystopian-tinged future of financial feudalistic lords, while nationalistic oriented systems may reverse global gains and destroy the value of national currencies. Fortunately, neither future is set in stone and the opportunity to create a different one is possible, but dependent on current governments choosing a different direction and using the tools at their disposal. The mechanisms available include monetary policy for expanding and contracting money supply, fiscal policy to set taxing and spending priorities, and regulations on financial investment and exchange.

           

How should they deploy these mechanisms, and for what end? Should the government pursue a policy of continued economic growth, or one that favors renewing the social contract to favor all citizens? Should we create rewards for sustainability and disincentivize consumption? What system best emphasizes personal initiative and innovation, while caring for the least of us? Although this is a political exercise more than a financial one, the answer will determine which mechanisms are put forward as solutions.

           

If we decide that economic growth and consumption is not as important as sustainability of resources, then systems that favor labor and saving over those that promote investment churn and profit will be needed. However, just as this will call for increased taxes on investment and capital, higher taxes on consumption, which disproportionally affect the poorest, will also be required.  Should we decide that social programs, especially in a possible future of large-scale human obsolescence, to ensure an economic floor for all citizens is vitally important, then investment and tax mechanisms will need to be balanced to provide revenue while maintaining risk incentives for growth of capital.     

           

Before we can fully and rationally answer those questions as a society, the greater challenge is confronting the myths of both capitalism and socialism. Believing that free markets and privatization are always the best method for delivery of goods and services ignores that many needs are basic for life, and costs are not always inherent in the price. Conversely, believing that governments are always honest managers that efficiently gauge the needs and wants of their citizens and deliver accordingly is also not supported by history. The answer lies somewhere in between with a need for a new folklore and heroes to provide a basis for a future that tempers the worst of these extremes while balancing the best of them. The question to be answered is whether governments will work to balance these needs and forge a new story for the future, or abjectly acquiesce to the myths of the money changers.

 

© E Alex Floate 2019

Tags:  finance  future  government 

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Will Nationalism Reverse Global Finance?

Posted By Administration, Tuesday, March 12, 2019

Alex Floate, a member of our Emerging Fellows program studies the impact of nationalism on global finance in his third blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.

The recent rise of populist movements in the West have rekindled a brand of nationalism that has created an ‘us’ versus ‘them’ mentality. Nationalism in this case goes beyond simple pride in country but develops into advocacy of one’s own nation above others and sees cross-border relations as a zero-sum game of win or lose. It also tends to be anti-immigrant, isolationist and even bigoted in nature and sees global trade and exchange as detrimental to the nation. Brexit and tariffs by the U.S. get the most press, but the rise of nationalist movements and autocrats is also affecting Turkey, Hungary, Poland, Italy, India, Israel, China, Russia and others. Europe’s financial institutions are especially at risk as nationalism threatens the continuance of the union and currency, but so are all standing financial relationships and markets.

 

This new nationalism will undoubtedly continue to reverse cooperative gains made so far and endanger financial institutions, both public and private, to efficiently and cost effectively provide services and capital across borders. The institutions of all nations may be threatened, but the severest consequences may be felt in developing nations as the West sees engagement with these countries as higher risk for less return. Engaging with them may also trigger some of the more racial elements of nationalists, as most famously represented by the American president’s reference to them as “shithole countries”.

 

Nationalism also endangers the internal finance of their own countries as vested interests capture government and enact laws that benefit domestic banks and entities over foreign competitors. Restrictions on the access of foreign based institutions to sell, buy, invest or lend will create multiple problems. Higher prices for goods and credit will be born primarily by the consumers of the economy. The inability to obtain investment capital or divest businesses will ripple through the entrepreneurial community and could lead to decreased business valuations. The largest corporate interests will not only survive but thrive in this environment as large banks become larger, and small competitors in all arenas are driven out.

 

However, these actions may sow the seeds of their own destruction. Control of the monetary system enables the nation to temper the expansion and contractions of the economy and in some cases prop up the ruling party. Just as the threat of nationalism may eventually destroy the Euro, the rise of alternative currencies and methods of value creation will spawn alternative finance networks that can also destroy the nation’s currency. A future scenario imagines these alternatives as creating systems that hasten national currencies to lose relevance and fracturing financial systems. If nationalist financial systems continue to be implemented, it will hasten that scenario as apolitical financial entities seek solutions to circumvent national politics.

 

Advances in global financial systems are in danger from a continued growth of nationalism. However, it will also affect global cooperation on shared problems such as climate change, nuclear proliferation and refugee crises, as well as endangering existing global political and economic relationships. An even more fragmented system global financial system will make meeting these challenges even more difficult. Just as the battle of communism versus capitalism defined the late 20th Century, globalism versus nationalism may define the 21st Century.  The question becomes will governments lead that battle, or just follow the money?

 

 

© E Alex Floate 2019

Tags:  economics  finance  nationalism 

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Has Finance Driven Digitisation?

Posted By Administration, Friday, March 8, 2019

Charlotte Aguilar-Millan reflects her thoughts about the impact of finance on digitisation in her third blog post for our Emerging Fellows program. The views expressed are those of the author and not necessarily those of the APF or its other members.

Innovation within the finance industry has seen unprecedented development. Not only in the accessibility of data but also how households access and manage their finances. Attributes such as easy access, speed of logging in and flexibility of data are now at the core of our expectations. Finance companies have stored a mass of data on their users to enable this. But how much data are consumers unwittingly gifting to finance within this digitised world?

 

Digitisation within everyday life is significantly affected by the finance industry. Through innovation in software capabilities, we are now able to access our finances through one simple easy portal within various forms of media. The future of digitisation within finance is reliant upon further integration of the customer’s experience. With the EU’s 2007 Payments Services Directive 2, it is now legislated that banks allow customers to share their financial data if requested. This has been adopted through digitisation. Banking apps now embrace a new feature where all bank accounts with various providers can be shown within a single app.

 

Banks are in the strongest position to develop digitisation. For years they have collected and processed personal data with customer’s transactions. With social media supplying instant feedback from customers on new digital products - through the use of tweets or Facebook commenting - banks are able tailor and adapt to customers wishes. Banks are able to analyse the data they have available and partner with companies to create an experience evolved from traditional banking. Today, most bank cards offer cashback opportunities on purchases at retailers which are tailored to customer’s previous bank usage. This not only provides a customer the financial incentive to use their banking facilities but also induces loyalty to a specific bank. 

 

Banks have been at the forefront of digitisation with developments in online platforms. However, this has also resulted in banks being at increased risk for lost confidence where the technology fails. Data migration between platforms saw TSB customers in May 2018 unable to access their accounts or make payments for weeks on end in what was due to be a weekend migration of 5.2 million of its customers between technology platforms. The effects of this error was a compensation bill of £116m and savings balances of customers falling by roughly £1bn as a result of 26,000 customers switching to an alternative bank.

 

This cautionary tale of reliance on data must be heeded by consumers. Whilst the TSB migration was the most publicised, banks such as RBS, NatWest and Barclays also saw glitches in customer’s usage of their online accounts in 2018. All of which has regulatory impacts on the safety of customer’s money. Finance must now take more ethical responsibility above and beyond the regulatory requirements. Customer security must not be breached in the name of innovation. Where the integration of technology and finance meet, so must accountability and security meet.

 

Finance initially lead digitisation through established banks enhancing their services with digital products. However, this has now transformed into digitisation leading finance. Fintech companies are being set up which supersede previously dominant finance providers. Companies such as Monzo, Tandem and Loot are fully digitised current account providers and adaptations such as ApplePay or Samsung Pay are making tangible finance providers redundant. The future could be that digitisation will drive finance, and that future banks are, actually, technology companies. Households now need to adapt to personal security resilience in order to protect their future finances.

 

 

© Charlotte Aguilar-Millan 2019

Tags:  Digitisation  Economics  Finance 

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Finance: servant or master?

Posted By Administration, Tuesday, January 8, 2019
Updated: Wednesday, February 27, 2019

Alex Floate, a member of our Emerging Fellows program examines the globalized face of finance in his first blog post in 2019. The views expressed are those of the author and not necessarily those of the APF or its other members. 


Finance touches anything that involves cash or credit. In public or private transactions. Whether it is to purchase individual or collective assets. For many people however, the word finance has become synonymous with the ability to get a new TV or car with a low-down payment. Although consumer lending for immediate desires is a part of finance it also includes investing, borrowing, insurance and the management of national monetary systems.

Our modern financial system began over 2,000 years ago with merchants granting credit to customers to enable them to purchase their products. Early banks in Renaissance Italy extended and aided these transactions and created innovations such as insurance. During the industrial age, finance evolved again to adapt to the capital-intensive nature of modern industry. Governments also found it possible to advance the common good by using these markets to raise money to invest in modern infrastructure and advance the public good.

Today, finance is globalized, heavily reliant on technology and intertwined with nearly every aspect of modern life. Nothing exemplifies a volatile, uncertain, complex and ambiguous environment better than modern finance. Every country with a treasury or banking system is integrated into a broader system that it can affect and be affected by events and decisions made by others a continent away. Major institutions, with stakeholders scattered across the globe look for advantages and profit in new markets and by leveraging the latest technology. Governments may seek to control their own economies for the good of their citizens but are often at the mercy of self-interest built into the system as profit seekers bid up, or crash asset prices and currency exchanges.

Recent events (global recession, Brexit, self-inflicted trade wars) will eventually be footnotes in history, but several themes from the aftermath provide insight for the future. One is that seemingly isolated events can move through global systems, even if those events are not seemingly connected. Another is that financial markets are resilient thanks to the various interests, both private and public, that will seek to revitalize the economy. However, increasingly this has been accomplished by turning private losses into public debt. The hardest lesson we learned is that even after a disaster caused largely by the financial industry itself, nothing really changes. The industry itself has eschewed any and all attempts at real reforms that would reign in practices that create greater risk in the markets.

The biggest change in the last 50 years has been the growth of finance as an industry unto itself. Separated from the purposes of providing credit for purchasers, capital for industry and risk management for all. The financial industry created a means for trading financial instruments themselves, such as derivatives of stocks, currency swaps and commodities that bear little relation to the actual hard assets. This has introduced additional complexity and volatility. Yet it has provided greater rewards to those who can access, manipulate and profit from these specialized financial markets. It is also seen as contributing to the widening wealth gap in many nations. Within this context, we must ask if finance has ceased being the servant of economic enterprise, and instead has become its’ master, and what part it will play in our mutual future.

© E Alex Floate 2019

Tags:  economics  finance  market 

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