Wall St. & Main St.

Three financial trends impacting business innovation:

First, only a fraction of money in financial system make sit to Main St. businesses. Yes, there are equity and debt transactions every day. However, the role of capital markets and the banking sector in funding new investment is decreasing. Instead, their growing activity is lending against existing assets (housing, stocks, bonds) over productive lending. Companies are not investing in product or service improvements. 

Second, 10% of the population owns more than 80% stocks, creating an economy that is a zero-sum game between financial wealth holders and the rest. Shareholder value is now serving as corporate governance, contributing to the “markets know best” ideology. This contributes to creative accounting, tax optimization and financial engineering – none of which encourage growth (Source: Financial Times).

Third, IPO’s have decreased. Entrepreneurs used to see this step of business evolution as a tool for economic growth by raising capital for new investment. Now, this is the entrepreneur’s “exit strategy” as well as a milestone for the end of innovation. A Stanford University study found that innovation tails off 40% after going public (Source: Time Magazine, Capitalism, Rana Foroohar).

How does your organization finance innovation?