When Finansavisen presents it as news that the bankruptcy rate is 13 per cent for companies that have raised money via Folkeinvest, the real news is that this is startlingly low. The number is likely to rise in the coming years. Is it a problem?
According to the Harvard Business School, 75 percent of all start-up companies that receive venture capital in the US have gone bankrupt within ten years. Why then do some of the richest people in the world put their money into investments they know have a high probability of losing? Among other things, because they consider that even if there is a high chance that they will lose the money in nine out of ten cases, the return on what is successful is worth the risk.
If there is something Norway does not have too much of, it is risk-averse private capital in the early stages
One basic idea behind Folkeinvest is that the capital market in Norway is dysfunctional. Early-stage investments through regulated players, who are obliged to carry out investigations, are almost exclusively reserved for professional investors. The reason is twofold. Firstly, that the old brokerage houses have little interest in taking on assignments for companies seeking amounts below NOK 50 million. Secondly, that they do not prioritize getting capital from “most people”.
A number of companies with good ideas have therefore previously been referred to practically raise capital via friends and acquaintances over the kitchen table. Many good companies have died in the crib because they were not nourished. The capital access committee pointed out that there is a capital gap for businesses with a capital requirement of up to NOK 20 million.
We have one goal: To help democratize risk capital. Most people are referred to the stock exchange or property market to invest. There are many examples where the greatest increase in value has already been realized when a company is listed on the stock exchange. Trading in listed companies naturally also entails a lower risk of buying shares in companies that go bankrupt in the first place. But for us, it makes no difference whether you have a few tens of thousands of kroner on the books that you want to use as risk capital, or whether you have a few tens of millions. The opportunity to take high risk (with potentially high gain) should be equal for everyone.
If you spread an investment of NOK 100,000 over ten companies and nine of them go bankrupt, but one company gives you back 30 times your original investment, you still have a profit of NOK 200,000. Finansavisen has mentioned the company MaxSnus, which raised equity capital through Folkeinvest. The company went public in Sweden four months after raising capital, and gave the early-stage investors a return of 112.5 percent.
2023-10-15 11:24:54
#High #risk #high #return
