Who wants money these days? Well, every entrepreneur starting up a business, manufacturing companies that need to keep investing in equipment, acquisitive businesses, and, of course, emerging economies. But the most startling aspect of the current need for money is, as Sherlock Holmes would have noted, the dog that isn't barking: a lot of dynamic, growing businesses just don't seem to need external funding anymore.
Take two of the world's most successful high growth businesses, Microsoft and Reuters. Both have been expanding at an impressive rate, a process which would normally demand capital for its financing. Yet Microsoft's accounts show cash in the balance sheet of $6.9 billion (not bad for a business whose sales are $8.7 billion and were only $1.8 billion five years ago). Similarly Reuters, whose turnover has almost doubled in the last five years, sits with its balance sheet overflowing with cash which it is trying (this time in vain) to return to shareholders. And for many less established companies, the story is the same. 3i's recent Quest for Growth awards for small high-growth businesses threw up numbers of new companies, whose arrival owed little to funding by 3i or its competitors along the way.
As the service sector continues to account for an increasing share of GDP in the more mature economies, this pattern will become increasingly familiar: a high proportion of successful high-growth businesses will have limited need for external capital because they can finance their growth internally. There is not much stock to finance in service businesses (nor in some others, given advances in supply-chain management). There is not much capital equipment to worry about either, and no need to tie up resources in non-productive assets such as property which is better rented (especially when shareholders demand a high return on capital). And the need for working capital is amply supplied if operating margins are good and customers are billed frequently. The owners of such businesses can hug the equity to themselves, avoiding the high borrowings that have been customary among those reluctant to see their holdings diluted. Look again at Microsoft, and the huge equity holdings of its senior employees.