16 November, 2013

1-1-9-12 value creation, the forms of value: Capital

What if, you have an asset or a resource that you want to make use of
-         An asset like money or may be an effort
You give here a certain amount of your asset - that your customers want-  for a certain % of legal ownership in their business

Like buying a stock

So:
1-    You have an asset that people want
2-    Find a business (a company) to invest in
3-    You estimate how valuable that business is (that part is kind of quantitative + a subjective part)
4-    Estimate the risk (chances that the business will fail, go bankrupt)
5-    Negotiate the amount of ownership in exchange for your asset
The main thing that differ the loan from capital that there are no interests here, you are actually kind of buying not lending here

The common thing between them, that most times (in case of money is the asset here) you benefit from the people making business, passively. You don't have to do any work if you want.

This value form is very risky, it is kind of bidding the asset on something you trust but you are not 100% sure that it will work. Though, the results can be very rewarding in case the business succeeded (you get to own a dividend or even acquisition of that successful business)