UL0022: Favorable Financing Foundation – an Inevitable Factor in Creating a Successful Entrepreneurial Environment

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UL0022: Favorable Financing Foundation – an Inevitable Factor in Creating a Successful Entrepreneurial Environment

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The world is brimming with start-up activity. With more and more countries realizing the economic growth and job opportunities that entrepreneurship can bring about, it is being sought as an activity to remedy ailing economies across the globe. However, in order to get the best of what entrepreneurship has to offer, it is important to create an environment where it healthily thrives.

The term ‘entrepreneurial environment’ refers to a variety of factors that come into play in fostering entrepreneurship in a certain area or region. Apart from a prolific regulatory environment, it is the feasible means of financing offered to entrepreneurs that can feed their entrepreneurial fire.

As entrepreneurship is central to the economic growth of a country, the alternatives of funding offered to an entrepreneur can make the difference of life and death. The more developed and mature options a financing environment has to offer, the more the entrepreneurs will be encouraged to come up with, and test, new ideas.

It is a widespread belief that an economy cannot go through the transition from underdeveloped to prosperous, unless and until it endorses an environment where entrepreneurs enjoy conditions that encourage them to go ahead with ideas regardless of how futile they may seem to others.

The world we are living in today is in its entrepreneurial age. New businesses are born every hour and entrepreneurs are driving a revolution that is renewing and renovating economies across the globe. These new businesses are not only earning the economic market its vitality but is also giving birth to newer products and services that are transforming the way we live. However, it would not have been possible had the funding sector of entrepreneurial economies not been so favorable.

It is a common observation that countries offering a developed entrepreneurial environment support would-be entrepreneurs to come to their homeland, enabling them to reap higher profits. Also, such economies pose a higher tolerance for entrepreneurs whose efforts failed to achieve results or backfired.

The business scene can be thought of as a pasture with the greener ones being those offering higher prospects of funding. It is obvious that entrepreneurs will be more attracted to regions where there is a tendency for ideas to get funded easily and where entrepreneurship is prevalent.

In a time when entrepreneurship has acquired the status of a trend, there are economies that are less entrepreneurially developed. This is because they lack the vibrancy of a financing environment that entrepreneurship needs to blossom. Since entrepreneurship is the organization of resources to initiate commercial activity, financing environment is one factor that can potentially influence promotion of entrepreneurship.

An analysis of different economies across the globe makes it apparent that entrepreneurship has failed to outshine as the venture capitalist industry in several countries is still in its infancy. In countries like Singapore, the scenario was no exception. However, as venture capitalists started setting up their bases in the area, this triggered a method known as aggressive equity funding, which then became the other extreme of the financial spectrum. This rendered the environment immensely realistic for start-ups.

A closer study of entrepreneurial economies reveals that there are two extremes to financial spectrum, debt financing and equity financing. Sadly, this is not sufficient. There is a need for a more vibrant financing environment that effectively bridges the gap between the two extremes. This can be achieved by financing methods such as angel investors, credit rating mechanisms, expansion funds and many others.

All in all, if all such gaps are filled and if a country can offer financing options to companies of different sizes and business models at different point of their life cycles, chances of creating a more expedient entrepreneurial environment are vastly increased.

The government can also play a vital role by first, attracting market players by facilitating their working and offering innovative forms of financing and secondly, by funding businesses. This can be accomplished by government sharing the risk factor by co-investing with third party investors.

There should be some form of a market test as well to enable the government to evaluate which projects are worth investing in. The government should not be responsible for picking winners. Instead it should only serve as a market catalyst that helps improve a business’ chances of getting financed.

On a final note, with better and more realistic funding options, it will not be long before any country will be able to develop itself into a pragmatic entrepreneurial environment.

1 Comment

  1. Highly descriptive post, I enjoyed that bit. Will there be a part 2?

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