The Equity-Financed Enterprise: Sharing Uncertainty to Support Investment
This essay takes a non-mainstream approach to small business finance and investment, with a particular focus on Europe. We advocate for banks to provide quasi-equity finance to support investment in uncertain environments. Quasi-equity, differently from debt, would absorb the downside for the entrepreneur and enable banks to profit from the upside that uncertainty creates. Combined with securitization, we see a possibility to enhance the role and profitability of the banking system, while at the same time launching a novel and potentially attractive asset class for investors.