Armchair Investors…stand up!
Say I’m starting a new venture and looking for investors for my business because I think it’s the best thing since the bread slicer and I’m a nice chap so I want to share the prospect of big bucks around, where should I look, and how easy is equity funding to find?
Well, recent statistics show that there certainly is the demand for such funding. This is partially due to the lack of other alternatives – I may have mentioned once or twice in my blogs of the demise of the traditional bank lending system and the disappointment felt throughout the business community that little has been done by the Government to either revitalise or replace this…did I?…Yes I think I did mention it just once or twice – and partially because of the work of a number of major players in the Angel network circuit to bring this form of small business investment into the public domain.
So if I were looking for investors for my business, you’d think they would be easy to find wouldn’t you, what with demand being up, surely supply will follow? Well, no, not really. And it’s this very question that points to the problem we face at the moment. People don’t always follow a logical pattern; sometimes people are just damn unpredictable! To find some wealthy individuals to become investors for my business is actually quite difficult despite the desperate need for such funding solutions.
It was a clever chap called Herbert Simon whose theories on the way we all think most clearly define why I might be having difficulty finding investors for my business. Until Herbert, most economists, being logical thinkers, had assumed in their theories that we were all just like them, logical thinkers who would assess all potential outcome scenarios before making a decision based on the best likely outcome. Herbert quite rightly said, hang on a moment, people don’t think like that. There’s no way we can assess all relevant information to make a logical calculation of the best outcomes, most of us just go with our guts, are influenced by preconceptions (whether they be right or wrong), let emotions cloud or influence our judgement, or we simply take the easy option. His theories on “bounded rationality” and the limitations of our ability to calculate the optimal solution in any given situation were so radical at the time that they even won him a Nobel Prize in 1978.
So what does all this have to do with the shortage of potential investors for my business? Well, even though logically an increase in demand should encourage more people to become small business investors we are, as a nation risk averse, a state of being that has not been helped by the nervousness instilled into us by the recent recession. To find investors for my business who are bullish and excited by the prospect of working with a new venture, you’re looking for a motivated, optimistic individual who by that very definition is swimming against the tide and therefore will be around only in small numbers.
The “let’s sit it out and see what happens” mood of the country has certainly had an affect on this nation’s armchair investors – the would-be’s and could-be’s that may have been tipped in the direction of becoming Business Angels who have remained seated. All those potential investors for my business just sitting it out until things start to look a little rosier.
Despite the many wealthy individuals who have the potential to become small business investors, I expect that we will see their numbers remain small until shinier economic conditions arrive or until we shout as a nation, “Rise up you armchair investors, leave your padded seats behind and feel the thrill of giving a new venture the capital lifeblood it needs to blast itself into the profit stratosphere.”
Image © Charles Fred
