What creative confidence is to industry is what investor confidence is to the economy.
“To be a formidable businessman, one either has to be an inventor or have an eye for an invention that can transform the market.”
The entrepreneur’s creative confidence drives business ideas, but business opportunities are driven by investor confidence. Investor confidence is the assurance and reassurance of return on investment from the commitment of financial capital to a seemingly promising business opportunity.
Investor confidence refers to the willingness of investors to engage in investment opportunities based on their perception of risk and return. It is influenced by various factors, including market conditions, economic indicators, and individual experiences. Before anyone can commit their financial resource to exploit a business opportunity, the following factors among others must have been well considered:
Realistic objectives
A case study of Nicola Tesla’s Wardenclyffe Tower
A business opportunity must be a realistic project with clear and realistic objectives. Tesla initially pitched the Wardenclyffe Tower project to J.P. Morgan as a world system of wireless communication to send messages, reports, and secure military messages, and to broadcast news and music. Morgan invested around $150,000 which Tesla accepted and instead began working on wireless electricity transmission, despite the investment being far below a realistic sum for the cost of the project. As Wardenclyffe tower required frequent modifications to the tower’s design during construction as well as expensive materials, the project was very costly. Realizing Tesla’s primary aim was for electricity to be free worldwide, which would be difficult to monetize, J.P. Morgan withdrew financial support and Tesla was forced to abandon the project.
The scientific community and further potential investors were also skeptical about the feasibility of wireless energy transmission particularly considering energy losses over long distances, which made it difficult to obtain further funding. At the same time as Wardenclyffe Tower was being developed, Tesla’s AC power distribution system was being implemented rapidly. The established infrastructure of wired electricity transmission made it even more difficult for Tesla’s wireless system to gain traction and funding, and the tower was demolished in 1917 to satisfy Tesla’s debts.
A project may be possible and plausible, but it may not be feasible, Wardenclyffe tower was an ambitious and audacious project which ultimately was not financially feasible.
Perception of risk
A case study of J.P. Morgan’s investment in Edison’s DC
The son of a successful financier, Junius Spencer Morgan (1813–90), John Pierpont Morgan, an investment banker was educated in Boston and at the University of Göttingen. He began his career in 1857 as an accountant with the New York banking firm of Duncan, Sherman and Company, which was the American representative of the London firm George Peabody and Company. In 1861 Morgan became the agent for his father’s banking company in New York City.
Morgan later went against his father’s ways and wishes when he invested heavily in Edison’s experiments with electricity. It was an unproven industry that carried with it an immense risk of failure. But to Morgan’s satisfaction and Edison’s exhilaration, the investment fueled great industrial momentum. Morgan’s house became the first private residence to be lit with electricity. The duo then, under an industrial name of Edison Electric Illuminating Company, transformed a building in lower Manhattan into the world’s first central power station. Soon, their ambition translated into power that illuminated half of Manhattan. This success was enjoyed for almost a decade till a humble acquaintance of Edison suggested an alternative to Direct Current. When Nikola Tesla asked Edison to look at his AC design, Edison, in his dismissal of it, created an unfortunate rival with his own hands. Tesla, who revered Edison, soon resigned and began looking for investors of his own. Blinded by the pride of his own invention, Edison made a blunder that sealed the fate of his tryst with electricity – he had failed to notice a potential rival. He convinced Morgan that there was nothing to worry about as he truly believed that AC current was unsafe and could never be accepted. It was only when Tesla began doing everything in his power to prove the efficiency of it that Edison, through the pressure that Morgan was now impressing on him, took serious measures to thwart this rival. It was a desperate time that called for a desperate measure because Edison went as far as using Tesla’s AC current in criminal executions by electric chairs to prove its hazard. This, however, backfired. The first execution was too gruesome for the public to digest and all they could now connect with this grisly affair was one name – Edison. Edison’s desperate moves stained his reputation along with that of Morgan’s. Morgan was haunted by his father’s words that had predicted this failure. But like a light in a dark tunnel, an opportunity came by that was for Morgan, the final chance to build his dream empire. A company at Niagara Falls was building the world’s largest power plant but hadn’t yet decided if Edison’s DC or Tesla’s AC current would be its star. A fierce bid took place at the end of which, to Morgan’s dismay, Tesla’s investor came out victorious. Edison, who had still retained some zeal through the debacle, suggested they move onto other inventions and products; he had the motion picture camera in mind. But Morgan had already set his plan in motion. He still believed there was immense potential in the business of electricity but realised his only chance of tapping into it was cutting the baggage that was Edison. So, he bought a majority of shares in the company, fired Edison, and created General Electric.
Sometimes, the higher the risk, the higher the return…
Perception of return
A case study of Morgan’s industrial consolidations
Investor confidence is often influenced by return on investment. J.P. Morgan was known for reorganizing businesses to make them more profitable and stable and gaining control of them. He reorganized several major railroads and became a powerful railroad magnate. He also financed industrial consolidations that formed General Electric, U.S. Steel, etc. In 1902 Morgan brought together several of the leading agricultural equipment manufacturers to form the International Harvester Company. In that same year he organized, with less subsequent success, the International Mercantile Marine (IMM), an amalgamation of a majority of the transatlantic shipping lines, notably including White Star.
PS: The war of currents came to a close with a financial merger. When will the current wars come to an end?
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