Enter your mobile number or email address below and we’ll send you a link to download the free Kindle App. Then you can start reading Kindle books on your smartphone, tablet, or computer — no Kindle device required. To get the free app, enter your mobile phone number. Kay is an admirable debunker of myths and false beliefs-he can see substantial things that others don’t. Kay is a brilliant writer with an ability to explain the role in the financial crisis of such concepts as credit default swaps, collateralized debt obligations and moral hazard We can applaud his call for a cultural change that will enhance ethical standards and put the customer. Other People’s Money is not merely another broadside content to denounce finance’s dysfunction, but rather a masterly attempt to locate its various origins and connect them with analytical and theoretical rigor. Kay provides by way of context a panoptic overview of the history, evolution and structure of the financial system in the United States and Britain, one that is impressive in its ability to weave together a comprehensive range of material, from the mechanics of banking to the Gaussian copula, in elegant, jargon-free prose. Barely a page goes by without an acute observation or other people s resources make money filetype pdf aphorism Above all, the finance sector should be judged on the same basis as other industries; if an activity is unprofitable without taxpayer support, it should not occur. Let us hope those in authority will listen.
Other People’s Money: The Real Business of Finance
A starter kit for leaders of social change. Money is a constant topic of conversation among nonprofit leaders : How much do we need? Where can we find it? In tough economic times, these types of questions become more frequent and pressing. Unfortunately, the answers are not readily available. There are consequences to this financial fuzziness. Too often, the result is that promising programs are cut, curtailed, or never launched. And when dollars become tight, a chaotic fundraising scramble is all the more likely to ensue. In the for-profit world, by contrast, there is a much higher degree of clarity on financial issues. This is particularly true when it comes to understanding how different businesses operate, which can be encapsulated in a set of principles known as business models. The value of such shorthand is that it allows business leaders to articulate quickly and clearly how they will succeed in the marketplace, and it allows investors to quiz executives more easily about how they intend to make money. This back-and-forth increases the odds that businesses will succeed, investors will make money, and everyone will learn more from their experiences. That is because the different types of funding that fuel nonprofits have never been clearly defined. Through our research, we have identified 10 nonprofit models that are commonly used by the largest nonprofits in the United States. Our intent is not to prescribe a single approach for a given nonprofit to pursue. Instead, we hope to help nonprofit leaders articulate more clearly the models that they believe could support the growth of their organizations, and use that insight to examine the potential and constraints associated with those models. One reason why the nonprofit sector has not developed its own lexicon of funding models is that running a nonprofit is generally more complicated than running a comparable size for-profit business. When a for-profit business finds a way to create value for a customer, it has generally found its source of revenue; the customer pays for the value. With rare exceptions, that is not true in the nonprofit sector. When a nonprofit finds a way to create value for a beneficiary for example, integrating a prisoner back into society or saving an endangered species , it has not identified its economic engine. That is a separate step. Duke University business professor J. Gregory Dees, in his work on social entrepreneurship, describes the need to understand both the donor value proposition and the recipient value proposition. As a result of this distinction between beneficiary and funder, the critical aspects and accompanying vocabulary of nonprofit funding models need to be understood separately from those of the for-profit world.
Buying Options
There are two ways to get rich. One way is to use your own money. One using your own money provides small-to-modest returns, takes a long time to pan out, and requires some financial intelligence. The other OPM provides large-to-infinite returns, creates incredible velocity of money, and requires a high financial intelligence. Good debt is a type of OPM.
Ten Funding Models
When it comes to raising money to start a new venture or build an emerging business, entrepreneurs can be anything but entrepreneurial in their thinking. When additional resources are necessary to take the next step in the business plan, the typical entrepreneur tends to begin thinking about «raising capital» in the most conventional of terms.
There are, however, other options that may be far more available and sometimes much less costly. Self-funding has certain advantages. If feasible, you avoid the expense of using OPM, e. Of course, there is the issue of whether you have the funds immediately available, or, if not, whether the window of opportunity will still be open if and when you are finally able to accumulate the funds. There are different flavors of OPM from which to choose, and there are advantages and disadvantages to.
Depending upon the circumstances, some of forms of OPM may be easier to obtain or less costly than. To minimize the cost, the entrepreneur must make strategic choices with respect to which category of OPM to seek, how much to seek and when to seek it. The two traditional categories of OPM, at their most basic, can be categorized as debt financing and equity financing. Debt means you take out a loan or sell «bonds» to raise capital.
Equity entails selling an ownership interest equity in the venture. Let’s take a moment to analyze the process of starting up a venture and bringing in investors.
Each participant co-venturer makes a contribution to the venture and in return is given some form of consideration. The amount or value of consideration that a co-venturer receives is a function of the value of the contribution made by that co-venturer.
In an equity transaction the investor’s contribution is money and the consideration is a percentage ownership equity in the business. In a debt transaction, the lender contributes money in return for repayment of the principal plus a fee. In both conventional approaches, the co-venturer contributes money. However, there is no rule that a contribution to the venture has to be in the form of money, or that consideration to the co-venturer can’t take some form other than equity or payment of a fee.
Consider the reason that money is being raised in the first place — to get access to the resources needed for the business. Instead of receiving money and using it to purchase services or resources, why not simply go directly to the source of the services or resources and convince them to be a co-venturer?
In other words, their contribution would be in the form of services or «resources» that the business would otherwise have to pay. There tends to be much less stringent criteria applied with respect to making services or resources available than with respect to contributing hard cash. Much of the time, providing existing resources to you leverages the co-venturer’s existing investment in its company, often at little incremental cost.
This tends to make the resources available to you at far less cost than having to build them on your. The type and amount of consideration paid to your co-venturer also tends to be extremely flexible. It could be, for example, equity in your company, payment of a fee sometime in the future, or payment of a percentage of profits from the sales of certain products.
The options for leveraging OPR are limited only by your imagination—and your ability to negotiate. In essence, it is a matter of being entrepreneurial about the way you raise capital for your business. Put yourself in the shoes of the entrepreneur, and consider your choices. You could:. This is where the departure from conventional thinking comes in. Finding a source of funds or resources, Meeting the source’s investment criteria, and The price to be paid for the use of the money or resources.
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