Why This Contest Matters So Much
The mechanism by which capital makes its way to young enterprises that could use it to boost their prospects and stoke the economy is broken. I’m not talking about the credit crisis of 2008–this problem existed long before that.
On the one end of the risk spectrum you have the swashbuckling (if somewhat chastened) venture capitalists. Their whole business model is based on identifying young companies with the potential to become the next Microsoft or Google. They swing for the fences every time. Why? Because they need that one big hit to make up for all the flame-outs that make up the vast majority of their investment portfolios.
On the other hand you have the banks. They don’t care about the sexy stuff–they just want to get paid back, with interest. How risk averse are they? Consider this tidbit from a recent story in the Wall Street Journal: Bank reserves now exceed the U.S. Federal Reserve’s regulatory floor by $1 trillion. (That’s trillion with a “t”.) Before the credit crisis, excess reserves–the stuff banks hate to hold because those inert dollars don’t make them any money–came to a wee $2 billion (with a “b”).
This is oversimplifying things a bit, but the question remains: What about the companies that neither have multibillion-dollar potential nor gobs of steady cash to keep lenders happy and fund their growth? Answer: They go wanting. And the economy suffers for it.
We’ve all heard the mantra that small businesses are the lifeblood of our economy. Politicians love that line. Platitudes aside, lack of capital remains the most fundamental constraint for any growing small business.
That’s why Forbes will continue to celebrate entrepreneurs who have the kind of ideas, plans and desire worthy of investment. That’s why we aim to educate readers so that, when the time comes, they have the best possible chance of securing their own funding. That’s why we put on the annual Forbes Boost Your Business contest.
On behalf of all our contestants, thank you for your votes. Stay tuned for the announcement of the grand-prize winner on December 10.
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