Have you noticed that the word “wealthy” has become a bit of a dirty word in our current society? There are a lot of politics, judgment, and envy at play when you’re wealthy. People often believe when someone is rich, they should be devoting all of their time and energy to the greater good. I don’t entirely disagree with this notion because entrepreneurs have incredible imaginations, are creative problem solvers, and can be a driving force for social good. However, you can’t help the poor by being one of them. First, they need to focus on becoming financially free themselves. Some people could see this as selfish or greedy, but it’s just like the flight attendants tell you when you board an airplane—you need to put your oxygen mask on first, then you can help other people.
When entrepreneurs are empowered with wealth, they can use their creative problem-solving paired with the capital they’ve created to solve much bigger, much more interesting problems. Some examples would be Larry Ellison, who has done more for cancer research than probably all the cancer research charities put together. Then Bill Gates, Warren Buffet, and many other billionaires came together to donate $600 billion to the Giving Pledge.
The problem is not the entrepreneurs and the amount of wealth they acquire. The problem is there are not enough entrepreneurs who become wealthy. In my experience, those in private equity actually make more money off of an entrepreneur’s success than the entrepreneur does. Ultimately, the entrepreneurs become the starving artists of the modern world.
Democratizing Wealth
Suppose we can create an environment where you meritocratically link wealth to the energies that you put in so that an entrepreneur makes the majority of the money from their activities. I think that would have a massive impact on global societies everywhere. Suddenly, you would have more wealthy entrepreneurs who could go out and change the things that have really affected them in their lives. They would also be an incredible example to people in their local communities. It would empower others because people could see someone who came from the same place they are and realize they also can become successful.
Global capital has become a bit detached from value creation. Value creation is creating a business, solving problems, and getting paid for solving those problems. Global financial markets are more interested in the risk, the risk profile, and the liquidity of investments. Now tons of derivative products have been created, and it’s made a parallel economy. One side has all the money, and the other has all of the value creation.
If you take a mature economy, like the U.S. or the U.K., for example, 50% of Gross Domestic Product (GDP) comes from the activities of small- to medium-sized businesses. This means that half of the economy’s activity comes from small businesses and when you look at employment, over 90% of the private sector workers are employed by those small- to medium-sized businesses. This means that they are incredibly systemic to those economies.
The Asset Managers of the world are looking after money for charities, institutions, religions, and all sorts of different sovereign wealth funds. The top 500 asset managers in the U.S. control $91.5 trillion. To put that into perspective, the U.S. economy is about $20 trillion, which means those 500 top Asset Managers hold more than 4.5 times the size of the U.S. economy. Of that $91.5 trillion, zero dollars go into the small- to medium-sized businesses that employ 90% of the workforce and generate half of the economy. In fact, the Asset Managers pride themselves on their diversification, and they’re diversified into all sorts of asset classes such as real estate, stocks, bonds, gold, silver, and even cryptocurrencies. There is an allocation for Bitcoin, but not an allocation for small- to medium-sized businesses. The closest allocation to small- to medium-sized businesses is allocating to venture capital, which generally would go to the Silicon Valley, massively-funded startups. However, those startups are not the small- to medium-sized businesses that are the engine of the economy.
Agglomeration is the Answer
If we can reattach global capital to small businesses, then we parachute trillions of dollars back into real businesses, real communities, and the real economy from a diversification perspective. I believe this is the solution to democratizing wealth. We need to make those small businesses an investable asset class for those top global asset managers.
We can do so by clustering the best SMEs and publicly listing them. I refer to this process as an agglomeration. By doing so, you can lower the risk typically associated with investing in SMEs (Small- to Medium-sized Enterprises) and create scale and liquidity at the same time.
The impact of an agglomeration is twofold. First, for entrepreneurs, it creates a connection between global capital and the value they have created, which will make them wealthy instead of those in private equity. Those entrepreneurs can then solve more significant problems or spend it in their communities and create a meaningful trickle-down effect. Second, we can unlock the trapped value in the SME space for ordinary investors for those of us who are not entrepreneurs.
Agglomeration has the power to redistribute trillions of dollars throughout the world because it is distributing it in a meritocratic way to the people in society who work hard, take risks, solve problems, and create jobs. The rewards and upside go to the ordinary people who back them by buying the shares. If you would like to learn more about agglomeration and democratizing wealth, pick up a copy of my book, Go Do Deals.
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