In 1601, the East India Company’s (EIC) first ship “Hector” embarked on its first voyage to Molucca in what is today Indonesia. This is remarkable because it was also the worlds first “publicly traded” company, 216 people had financed this new venture for 1 main reason; “risk”.
Put simply, sailing to the far corners of the planet was too risky for any single company. When the East Indies was first discovered to be a haven of riches and trade opportunities, explorers sailed there in droves. Unfortunately, few of these voyages ever made it home. Ships were lost, fortunes were squandered, and financiers realized they had to do something to mitigate all that risk.
Thus was born the risk-sharing model of doing business which birthed the PLC as we know it today, large amounts of wealthy people would finance the establishment of new companies for a share of the profits, meaning they shared the risk and the rewards. This evolved into the modern stock market system as we know it today and provided access to wealth and social mobility for a larger section of society than was previously obtainable.
In the case of the EIC above, all the shareholders were members of the nobility; barons, lords & knights, basically the higher classes of society at the time. That was around 400 years ago, I would say that we are about due for another upending of the current system of doing business
When the internet was being brought mainstream, its originators hoped that it would be a great equaliser, create new business models, value chains, unity, probably even world peace.
The question of whether the world is more peaceful today is up for academic debate. What cannot be argued though is that the internet has helped to create and distribute wealth on an unprecedented scale. The terms “Influencer, Internet millionaire, Digital Marketer, Web developer etc are all terms for people who have been able to make a living off the internet.
It only makes sense that investing in business ventures would receive a complete makeover courtesy of the internet. When the EIC was established, only members of the nobility could afford the high buy-in needed to become an investor which meant that they were the only ones who could also benefit from whatever profits that the company made. Today, with the click of a few buttons, any middle-class person can invest in stocks, bonds & commodities.
But capitalism is about more. Nowadays, people are no longer satisfied with the kind of returns you can get from the stock market, it is slow, volatile and subject to unreasonable charges which can quickly compound and severely reduce the expected returns on investment.
Enter “Alternative investments”. First, the name is a misnomer considering that small groups of people have been coming together to invest in business ventures since the dawn of time, these investments could be in time, resources or cash and were usually limited to friends, family or acquaintances. Somewhere along the line though, businesses have become wise to the fact that the internet having turned the entire world into a “global village” has created in effect a source of funding for large business ventures.
In a world where you can become “friends” (on Facebook) with someone you have never and might never meet, the potential to fund a business venture with this “friend” in return for a share of the profits is huge.
Proof that businesses are already getting wise to this is the massive ICO industry, more money ($15 billion) has been raised in ICO’s in the past 5 years than has been raised in traditional venture capital. For the uninitiated, this is huge because an ICO is basically a high tech crowdfunding campaign.
And speaking of crowdfunding, the success of platforms like Kickstarter, Indiegogo & Crowdstreet has shown that the public is ready to absorb the risk of investing “negligible” amounts of money in all sorts of ridiculous ventures (No seriously, take a minute and explore Kickstarter).
Closer to home, in Nigeria & Ghana Agricultural crowdfunding companies like Farmcrowdy, Complete farmer & Agrilet are showing that not only are people willing to invest for a chance to be e-farmers, the model is also sustainable and might be the fastest way to industrialise the agricultural sector in Africa.
The internet has irrevocably changed the world, it’s hard to see what sectors or businesses will remain untouched within 25 years, could it also have created a whole new source of funding for businesses in the future?after all there is a saying in the eastern part of Nigeria that goes “when a man cooks for the public, they can finish the food, but if the public cooks for one man, there's no way he can finish the food
Going forward, it would be interesting to see what business models & ventures can be created using this model. Responsible government regulations will also need to catch up with this sector in a way that does not stifle creativity but also protects micro-investors as much as possible.
What do you think, have you invested in any of these platforms?
What is the most interesting platform you have come across?
Would you invest in these schemes, why, why not?
What direction do you think this sector is headed?
Let me know what you think in the comment section.