Corporate Finance and the Quality of Money

Posted by Denise Connor on May 19th, 2023

The broad discipline of economics is sometimes treated like a quantitative and hard physical science, and other times as a qualitative and human science.

The debate is whether economics revolves more about generalities and trends that can be explored, but cannot be proved with certainty.

As a subset within economics, corporate finance is often framed as a very hard, mathematical science.

Corporate finance is a process that matches the necessary funding for trade with the allocation of ownership via investment.

Stocks and credit must be funded through a combination of equity, trade financing instruments, and debt. The ownership of companies can change with time, depending on the allocation of investment and equity aimed at acquiring ownership or funding specific activities.

It is important to think about the value that can be added beyond the cash value. This is especially true when it comes to investing in growth companies and particularly those at an earlier stage. The Quality of Money, a new research theory, highlights the fact that investment is more than just a monetary value.

The concept of The Quality of Money encompasses a number of elements, including evaluative capability, co-creation of working relationships and realistic plans, ongoing management support and sector leverage, as well as additional networks and the ability of creating a suitable follow-on financing plan.

The traditional adversarial relationship that exists between the investor and the investee is a major problem. The spate of TV investment competitions, and the many regional and local imitations have exacerbated this problem.

A good investment agreement is not built on a brief, aggressive meeting where the entrepreneur uses hyperboles and the investor resorts to overt bullying.

A realistic plan for the future is another key area where investment discussions can be more productive. Entrepreneurs are often compelled to exaggerate their potential, sometimes to unfeasible heights. Investors will often understate the potential they perceive in order to meet owners' expectations.

These tactics do not enhance the ultimate goal, on which both investor and investment interests are aligned. This is the creation of new value in an enterprise.

Too few institutional investors are able to create rich methodologies for evaluating investments. Former bankers often have a good understanding of the general markets. Effective funders are able to build a network of experts around them, not just because they have a wealth of personal experience. It is common to combine academics with businesspeople, both senior and successful entrepreneurs and sector experts.

The final element of this overview of The Quality of Money is the ability to plan and achieve funding success. This is especially important if an investor doesn't have a lot of money.

When a company's first major capital sblc injection begins to run out, the last thing they need is to have to deal with the distraction of trying to establish a new set of investors and start the massive task of promoting themselves and securing investments from scratch.

While it may be tempting for young companies to accept any investment, it's better to try to get the best quality of money. Investors should also consider whether they risk selling their investment short by being aggressive, not committing to networks or support, and failing to pay attention to future scenarios.