The Business World: The Internet Way to Find Capital Investors

By McRae, Hamish | The Independent (London, England), June 16, 1999 | Go to article overview
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The Business World: The Internet Way to Find Capital Investors


McRae, Hamish, The Independent (London, England)


A FEW days ago I received a wonderful offer on my e-mail. I was one of the select few who could invest in some new hi-tech American company and would, for a small stake, probably become immensely wealthy at little or no risk...

I hit the delete button pretty fast. But then I regretted it because seeking funding by e-mail seemed a novel way of trying to finance a business and it would have been interesting to find out more. In particular it posed the following question: if the new technologies are bringing about a democratisation of information, how are the capital markets faring in bringing about democratisation of capital?

One of the most important changes taking place in the business world is the increased access that small and medium-sized companies have to information, thanks to the Internet and related technologies. We are racing towards a position where a tiny one-person business can find out as much about a market, a customer or indeed a rival as can a multinational with a big research department. But large companies still have the advantage of much greater access to capital: they raise money more easily and more cheaply. This leads to a strange irony. Big companies the world over are, on balance, downsizing their workforces, while small ones are taking on more staff. But big money backs big companies, not the small. So it would seem that capital, in general, is on the side of job destruction, not job creation. Or, to put the point round the other way, the more democratic the access to capital the more likely it is that there will be strong jobs growth. I have been looking at some work comparing access to capital in different countries around the world, carried out by the Milken Institute in California. The main thrust of this work is to measure access to capital in an orderly and consistent way - not just access to capital by small businesses, but access to capital by the private sector in general. The measures chosen are divided into three groups: quantitative ones, risk ones, and qualitative ones. The first include things such as the size of equity market capitalisation and private sector debt relative to GDP, the concentration of the corporate sector and of banks into large companies and company tax levels. The second look at currency, interest rate and stock market volatility. And the third group covers everything from countries' credit rating and access to foreign capital markets, to levels of tax evasion and corruption, and risks of expropriation. The result? Well, unsurprisingly the US comes out top and Russia comes bottom. More surprising, perhaps, is the top rankers behind the US: Switzerland, Hong Kong, the UK, the Netherlands and Singapore. Of the rest of the G7 countries, Germany and France do reasonably well, Canada is in the middle, while Japan and Italy do relatively badly. League tables, in this area as in so many others, need to be taken with a pinch of salt, and it is easy to quarrel with some of the measures that have been chosen. The list does rather reflect an "Anglo-Saxon" approach to finance. Still, there are some interesting lessons for the UK, aside from the generally encouraging message.

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