Leveling the financial playing field
Rishi Khosla shares his thoughts on how OakNorth is seeking to unlock capital to help small and medium-sized businesses grow.
If you look at our background, my business partner and myself, the first business that we started, we used $60,000 to build our business. So we came from pretty modest backgrounds. In 2005, we went to a commercial bank for a line of credit, they spent all of, sort of, four minutes looking at the application and sort of gave us a ‘computer says no’ type response. And we said to ourselves, its just incredible that we couldn’t get a relatively small amount of money from a commercial bank, but yet an institutional player, who spent the time analysing our business, was able to give us more than 100 times the amount of capital.
Why is Oaknorth important?
When you look at small and medium sized businesses, and you look at those owner-managers, their ability to actually get access to financing to actually grow their businesses, is a major obstacle to them being able to grow. You take the other end of the market, the larger corporates, they get access to extremely cheap money, and therefore those businesses keep on reinforcing themselves and getting bigger.
How do small and medium enterprises contribute to society?
Look at a high street across 3,4,5 major cities. You’ve got a lot of the same brands in every single high street – right? That, to me, makes a soulless world. If you look at, actually, what a lot of small, medium sized businesses bring, they bring creativity, they bring change. They are also the engines of growth.
If you look at our whole approach to lending, it is actually analyse businesses in a much more rigorous manner. I’m going to actually understand how this subsector works, how this business compares against its competitors, then I’m going to put all that together to determine actually how much we can lend to it, so that we don’t end up in a world which is effectively dominated purely by larger corporates.
Should Valuation matter to an entrepreneur?
Fundamental performance of an organisation should matter to an entrepreneur. Should you chase valuation? Never. My approach is that you build a business as if you’re going to own it for life, so at best, effectively, a valuation is like an external mark to market, rather than something to build the organisation for, or around.
What’s Act Two for the business?
What’s act two for the overall business? Look, I still think we’re in the incredibly early stages of building this business. If you look at the overall loan-stock of SME lending, we believe that is an underserved market. If we help to expand that by 5, 10%, that’s already an incredibly large impact on financing for small and medium sized business owners across the globe.
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