The global economy needs people like you to lead it out of recession, writes Simon Cook, CEO of venture firm DFJ Esprit.

The global economy needs people like you to lead it out of recession, writes Simon Cook, CEO of venture firm DFJ Esprit.

When our global leaders gathered in London at the G20 conference, the media reported with increasing drama how this handful of people had only a few hours to save the world. If an agreement wasn’t reached, we would all be sliding into a second Great Depression. Fortunately, some sort of concord seems to have taken place among these powerful leaders and, for the first time in a while, the media are carrying hopeful stories as opposed to relentless doom and gloom. The markets reacted similarly.

It will take a lot more to turn our world around economically. Frankly, we have too much production capacity in some areas where demand has been fuelled by cheap credit, and adjusting this capacity into new areas of real and growing demand will take time and be painful. Unemployment is climbing rapidly, and based on past recessions, we could see one in five people out of work before things improve.

However, without ignoring the individual stress and problems that unemployment creates, even at the height of the Great Depression in the 1930s, unemployment never reached more than 25 per cent. From this, we can see that even if the worst were to happen, most of us would remain in work. And while our leaders play their part, we have our own individual responsibility to help save the world. It is the seven or eight in ten of us still employed who must also do what we can to help those less fortunate.

Who’s the boss?
There are several ways to make a difference at the individual level beyond paying higher taxes. One way would be to quit your job. If one in seven of us quit and created a small business which employed just one or two staff, then we would soak up the surplus labour quickly. These micro-businesses may not be hugely scalable profit-generating companies which attract venture capitalists like myself, but they will be fulfilling a need for their customers and workers and are vital to the economy. In the age of the internet, many of these micro-businesses can reach out to a global market from their home office.

‘Putting your money in gold may feel safe, but it does nothing to help the economy’

There were an estimated 4.7 million businesses in the UK at the start of 2007. The vast majority of these (99.3 per cent) were small businesses (with fewer than 50 employees) and provided 47.5 per cent of the UK private sector employment and 37.4 per cent of turnover. Many people are more than capable of starting and running a business but never get round to it, putting it off until they are made redundant and have no choice. Take Claire Robertson, the manager of the Dorchester Woolworths who appears to be a very capable entrepreneur and has relaunched her store as Wellworths, employing 20 of her old colleagues. Why wait for someone else to make what could be the best decision of your life? 3i ran a series of adverts in the 1990s that said “Good at your job? Then quit!” Why not? The government could help of course by putting in place incentives for SMEs to start and to hire new staff rather than propping up oversupplied industries.

Alternatively, if you have enough savings and/or don’t have to work, you can always become more accountable for how your savings or spare cash are deployed. Try to invest in areas that create wealth, jobs and productive growth. Putting your money in gold may feel safe, but it does nothing to help the economy get back on its feet. Paying off your mortgage may also be sensible, but will largely just help rebuild the banks’ balance sheets, and the probability is that your job is secure, so don’t worry. Buying bonds and equities in large companies paying big dividends isn’t going to get your capital deployed into new areas of demand, and banks serve those big companies well enough anyway.

Private investor
Instead, why not invest in a small business as an angel through one of the many angel networks, or make a loan to an entrepreneur, maybe via a micro-lending site? Perhaps invest in venture capital funds or via the Enterprise Investment Scheme, which seek out new technologies in areas such as clean energy or medicine. Yes, there are risks, but these risks may be no higher than the public markets, which until recently seemed “as safe as houses”.

By deploying capital at the grass-roots level and moving jobs to where new demand is emerging, the rewards will be felt by all of us.

Simon Cook is the CEO of venture capital firm DFJ Esprit and has been involved with the UK venture capital industry since 1995. He has been involved with a number of Europe’s most successful technology start-ups. His past successes include Cambridge Silicon Radio, Virata, nCipher and KVS. Previously Simon was a partner with Elderstreet Investments and a director at 3i in Cambridge.