Crowdfunding
The world is currently facing a trying period where a pandemic has disrupted our normal way of life. However, during this time we have proven our resilience. We have discovered how much we care about our fellow man, as we stayed indoors and social distanced to ensure the health of our society. We have also discovered the talents and creativity we previously hid going about our everyday tasks, and have mastered and displayed them on social media for the world to see. The one downside to our efforts is that our economy has begun to suffer as noted by the high unemployment, pummeling stock prices, bankruptcy and business closures. On a macro-level, these developments are magnified, due to reductions in productivity resulting in a lower GDP with which to service our sovereign debt. Therefore, we must identify ways in which to jump-start our economy and begin the road towards recovery and that is possible through our entrepreneurs. The problem however, relates to access to financing in order to raise capital, as traditional means of funding through financial institutions can be hard for start-ups to access. In these instances, alternative means of financing would be needed. Two alternatives are crowdfunding and venture capitalism, which would aid in the development, growth and sustainability of our small and medium-sized enterprises (SMEs). This means that, amazingly enough, we have the tools to harness the talents we have discovered, save our country and continue to help our fellow man.
The need to support SMEs, is exemplified in an extract from IMF paper Financial Inclusion of Small and Medium-Sized Enterprises in the Middle East and Central Asia as follows, “Small and medium-sized enterprises’ (SME) financial inclusion, in particular, is at the core of the economic diversification and growth challenges many economies are facing…” The paper continues, “Improving SME financial inclusion can help increase economic growth, job creation, and the effectiveness of fiscal and monetary policy and could also contribute to financial stability.” This extract indicates that in order to support these enterprises it is important that they have access to financing. The issue occurs where businesses are deemed too risky to obtain the level of financing needed. It is important in these instances, that an alternative is available to give these businesses a chance, and crowdfunding is one of the best tools. Following the Economic Recession of 2008, an article entitled What Is Crowdfunding and How Does It Benefit The Economy was published on Forbes.com. In this article it states, “A great additional benefit to crowdfunding is its economic helping hand. Anything that aids in generating revenue is desperately needed in our sluggard economy, and crowdfunding has proven to be a powerful force. Not only is it pumping small businesses with desperately needed lifeblood, but it is also encouraging entrepreneurs to continue creating even in the face of these slow times.” Crowdfunding is perfect for Barbados, even before the onset of this pandemic; there were thousands of Barbadians with great ideas and no knowledge of how to get started. For instance, given our focus on the tourism industry, businesses such as restaurants and taxis, which are currently in financial difficulties, could raise much needed capital through crowdfunding. In exchange, investors can receive discounts, coupon cards, special trips or special rates for their “investment”. This not only fortifies the businesses’ ability to continue as a going concern, but also allows Barbadians to have a sense of belonging and appreciation for their contribution to the sustainability of the businesses. This would also give businesses the start they need to then approach traditional financial sources for capital needed for expansions after the business has recovered. By keeping these businesses open or able to expand, this allows for an overall improvement in the economy.
Venture Capitalism
To quote Warren Buffett, “Investing in yourself means tackling areas you aren’t good at and learning new skills…Address whatever you feel your weaknesses are, and do it now.” It is with this inspiring quote that our country should look towards venture capitalism to allow firms to support SMEs, by equipping them with the knowledge and resources necessary for growth. This requires a commitment by SMEs and financial institutions towards the common goal of development. Most small enterprises lack the innovation, experience and business intelligence required for optimal functioning, financial institutions through a venture capital arrangement could provide this knowledge. A venture capitalist as defined by Investopedia is “a private equity investor that provides capital to companies exhibiting high growth potential in exchange for an equity stake. This could be funding startup ventures or supporting small companies that wish to expand but do not have access to equities markets. Venture capitalists are willing to risk investing in such companies because they can earn a massive return on their investments if these companies are a success.” In essence, the VC can support a business’ growth, once potential has been detected, by actively advising, guiding and supporting the business to ensure that growth is achieved. Given the investment that the VC has made, there is a greater commitment to the business’ success than would have existed in the traditional financing channels. In addition, as stated in the definition, VCs take on riskier businesses that traditional financial institutions would normally decline. This has greater implications for the economy, as more businesses would ‘start up’ because of the VC arrangement. This can also lead to a more robust stock market as VCs on the Barbados Stock Exchange can sell shares in growing businesses.
Altogether, the use of Crowdfunding and Venture Capitalism fosters improvements in the economy through the development of innovative and creative new businesses allowing for decreased unemployment, increased money creation and a definite turnaround for the Barbados economy. By creating the channels to invest more in our people, we create the perfect environment to discover new avenues for Barbadians and more opportunities for Barbados. No longer must we be slaves to the current system or be forced to accept only what is available. We can chart a new path and highlight our greatest resource- our people; we can finally be “Firm craftsmen of our fate”.