Saturday, October 23, 2010

Explanation of Micro-equity

Micro-equity is a combining of micro-credit, which has done some good things in the world, with venture capital, which creates new economies. And micro-credit is starting to show signs that it sometimes brings negative results (explanation pending). 
The transaction size can be bigger, up to US$10,000, but the micro-finance firm retains a 50% stake in the recipient firm. The concept has two advantages over micro-loans:
1) The Micro-equity firm is highly motivated to assist in the success of the investee.
2) The Micro-equity firm earns a profit through capital gains at exit, which profits can be used to launch the dreams of even more entrepreneurs.
1) The transaction size is so small that the Micro-equity firm is de-motivated to analyze business plans.
2) The cost per transaction, particularly for fixed costs of the fund and for sourcing potential deals, is too high to justify the effort.

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