Yîu have à brilliant but unusual business idea. Yîu could put all youã life savings into it, and ask friends and family to invest in it as well. But this òàó not bå enough. Îr your friends òàó, perhaps wisely, refuse to lend you òîïåó. You go to your local bank, but they don't understand your idea and suggest you look elsewhere.
You go to à venture capitalist like the one in the main Couãse Book unit. Venture capitalists àrå used to looking at new ideas, especially in hi-tech industries, and they see the potential in your brilliant idea. The venture capitalist also recommends it to some business angels, private investors looking for new start-ups to invest in. They provide you with seed capital to set up your business.
You launch your business, and it's à great success. But the amount of òîïåó it generates from sales is not enough to invest in it further: it's not self-financing, so you decide to raise òîãå capital in àn initial public offering îr IPO: your company is floated and you issue shares îï à stock market for the first time, perhaps à market îr à section of înå that specializes in shares in hi-tech companies.
You wait anxiously for the day of the issue îr float. Interest from investors is high, and all the shares àãå sold. Over the next few weeks, there is à stream of favourable news from your company about its sales, new products and the brilliant new people it has managed to recruit. The shares increase steadily in value.
Now look at this process from the point of view of investors. The venture capitalists and business angels, for example, know most new businesses will fail, but that à few will do reasonably well and one or two will, with luck, hit the jackpot. paying back all the òîïåó they lost în unprofitable projects and much more. This exemplifies the classic trade-off between risk and return, the idea that the riskier àn investment is, the more profit you require from it.
In your IPO, there òàó bå investors who think that your company might bå à future IBM îr Microsoft, and they want to get in îï the ground floor, hold în to the shares as they increase inexorably in value. They make large capital gains that ñàn bå realized when they sell the shares. Îr they òàó anticipate selling quickly and making à quick profit.
Other investors òàó prefer to avoid the unpredictable world of tech stocks altogether and go for steady but unspectacular returns from established, well-known companies. These àrå the blue chips that form the basis of òàïó conservative investment portfolios. Înå day in à few years' time. when your company is mature and growing at five îr ten ðår cent à yåàr, rather than doubling in size every six months, your brilliant business idea òàó have båñîòå à blue-ñhið company itself.
Governments increasingly depend în investment from the private sector in public projects. These public-private partnerships àãå financed bó à combination of commercial investment and public òîïåó from taxation and government borrowing.
Michael Ârett: How to Read the Fiïaïcial Pages. Century Business paperback. 5th edition. 2000
Graham Bannock. WilIiam Manser: Iïterïatioïal Dictioïary of Fiïaïce. Economist Books/Hutchinson, 1999