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What does it mean that a business plan sucks? How does the bank know? Is the bank correct? [So - insert paragraph about actuarial risk analysis here. But...]

Here's a business plan that sucks:

  1. Collect underpants
  2. ?????
  3. Profit!

Now, in an ideal world it's the job of the bank to have specialist analysts whose job it is to study business plans and the running operations of businesses in particular industry sectors. That's what banks are supposed to do: concentrate the risk-analysis function of society. Ask Jérôme what his porject finance work was actually about.

How do venture capitalists decide a business plan sucks? Are they correct?

If the government wants to lend directly to worthy projects, how does it know they're worthy? It is correct?

In the ideal world, too, there are a multitude of banks each specialising in a different mix of products, industry sectors, consumers and geographies. until two years ago, if you wanted to build a wind farm and your local bank didn't understand the risks, you switched banks and went to Jérôme's bank... Then Jérôme left the bank...

In the real world, of course, people lend to their golfing buddies or on the basis of whether the business plan is a spiffy ppt, the banking sector is incresingly concentrated so there is less opportunity to go to a different bank for funding, and so on...

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Fri May 13th, 2011 at 04:35:45 AM EST
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