Sunday, January 16, 2011

The Continuing Reign of Finance?

I graduated from Bainbridge Graduate Institute (BGI) with an MBA in sustainable business three and a half years ago. Farm Power was only a few months old, and one of our biggest hurdles was raising capital. While I had discussed this extensively with other interested classmates, our education hadn't focused much on finance--with the notable exception of one spectacular Entrepreneurship class, we had spent little time on the mechanics of debt, securities, and such.

Today, Farm Power has perfected its formula for funding capital-intensive projects, borrowing millions of dollars from sustainable banks while raising equally large amounts from investors and grants. I haven't kept up with the curriculum at BGI, but I have noticed that guest speakers these days are definitely trending towards finance. Unfortunately, it appears that most of the topics end up being on the service side of the industry--analysis, wealth management, and such. And all I can think of is: "None of this really matters!"

It probably sounds strange to hear this, so let me explain: what I see is an economy with vast amounts of money sloshing back and forth, try to cheat basic laws of physics and biology. New sources of energy or sustenance can't be conjured out of thin air, so finance turns to speculating in derivatives of the tangible. The simple existence of hedge funds and their manager compensation norms is evidence enough that there is no shortage of capital willing to pay obscene fees for a chance to cut corners on actual wealth creation. Meanwhile, creating sustainable new sources of food, electricity, or transport is hard, risky, and requires a long-term view.

What this world needs is not another level of money managers or more analysis of mutual funds or even another investment bank; what it needs is more people working to create long-term value that is actually worthy of financing. Our system of worshiping at the temple of finance may or may not be beyond help, but there are ways for truly good ideas to access capital and investors who want to provide it.