Week 8 Reading Reflection

This chapter mainly focuses on different forms of capital entrepreneurs can take into consideration. Initially the chapter talks about debt and equity investments and they go into details about each. Debt, which regards commercial banks and the equity, which regards to public offerings. I found this chapter pretty interesting. I am an accounting major so I am familiar with a lot of these terms, I also believe that’s why I have a lot of opinions regarding this topic. First and for most, investing when you start a business. Like the author said, it’s a lot safer to get involved in equity capital than in debt financing when stating up. Although in the U.S they both have their risk. Debt investment means that you will need to pay a significant amount of interest which after some time might actually outweigh the borrowing benefit. You also have a responsibility to pay back and a heavy use of debt can actually hurt the growth of your company. This is true for the U.S but this hits a lot of areas where I personally don’t agree with the United States banking system. It’s important to be aware of your risk in either investment, like they say “magic always comes with a price”, well investing does too (usually in the form of interest). Personally I think the theocratic countries got it right. Islamic banking is the most ethical form of debt financing. Although there is no significant evidence that Islamic banking helps at all with economic crisis, I have to agree with the theories that it prospers innovations and helps with new ventures. Islamic banking allows individuals to take loans from the bank but banks are not allowed to charge interest, everything is based on physical assets and the entrepreneur and the banks share the risk. So if my business fails, I’m not the only one suffering the loss, so is the bank. Hence forcing the banks to have the best interest in mind when it comes to small businesses. If we had this system in place then debt investment would be a lot safe than equity investment. Just think how much better this would be for small local firms. But in the U.S we don’t have this system, meaning that for small firms it’s safer to go public than to rely on your local bank. I could go on about this for a while, but my point is this was my favorite part of the chapter. Now, I completely disagree with the author on his “Dispelling Venture Capital Myths”. Maybe I’m too cautious, or maybe my dad conservative, laissez faire mind set has sort of rubbed off on me. Personally, no I don’t trust venture capitalist, mainly for all the reason/myths the author has listed. For example the author claims venture capital firms want to control your company. This is extreme and impractical, but I do believe that they are in the business of making a profit, not helping the average citizen with some saving make a return. This is why I admire theocratic countries and their ethical/conservative business measures (although I do not agree with their accounting regulations, I do believe U.S GAPP/IFRS are superior). Secondly, he goes on to these really good relevant points, but he glorifies venture capitalist. Nothing is that good in this world. Just ask yourself, would you rather own your own business or partner in a larger, potentially more successful one? All in all, investment and borrowing is necessary, you have bills to pay, quotas to mean, machinery that needs replacing and investments that need to be made in order to stay competitive. You just have to find a way to finance your business growth.