Financing innovative transportation systems

Financial functionality and priorities

Many who have new ideas or technologies tend to give financial plans high priority. We argue that financial plan and discernment should be set after sound ideas, concepts and structure plans have been completed. The argument is not derived from financial insignificance, but because:

  • Money is the most ubiquitous commodity.

  • Money is a "liquid" that can fill "cavities" that remain after construction.

  • Good stakes are rare than money.

  • Sound financiers judgment should reflect advantages or weaknesses of ideas through technologies, business plans, organization structures or quality of products.

The business world has a long history experience of financing that can accommodate various demands. There are many well-known financial tools and strategies, which can answer a variety of situations, problems and risks. Financing automatic intelligent ground transportation system does not pose unique problems that demand unknown financing tools, but the unique problems demand special financial suit.

Financial dummy circles

The special financial problems may reflect few important dummy circles that should be broken:

  • Creditors usually ask to secure their loans. The natural securities in a sound business are the sources of income that reflect good prospects and business plans. Revenues can not be created without credit.

  • Creditors prefer debtors with a good reputation. Organizations that succeed to acquire money have good reputation. New organization and products, by nature, have no reputation and financial history.

  • Creditors try to avoid risks and refrain from financial credit to risky businesses. Without credit the business could become risky.

  • People of reasonable judgment, especially conservative public authorities tend to trust organizations who have a positive image and reputation. Successful finance acquisition reflects a sound business plan, and generates positive image and reputation. Investors prefer organizations that are trusted by the authorities.

Incremental steps and initiation of innovative system entrepreneurs could break the financial dummy circles.

Owners investments and contributions

Self-owners' contributions to the consortium will prove to the external financiers the gravity and faith of the owners in their business, that may help to break the dummy circles. Contributions of shareholders should not be confined to monetary investments; the value of property transfer, concessions, sole or lasting services or labor might be considered financial contributions as well. Evaluation of the non-monetary contributions can be done and may be refunded by shares allotment or be quantified as debentures, secured by floating charge, servitude of future revenues, mortgage, or other kinds of securities that will be linked to future success.

Owners' investments motivate the owners to reach the goal of the enterprise in order to recollect their investments, and to be binded to the budget allocation and the financial responsibility. There may be a lack of motivation when only using other peoples money.

Serious consideration must be given to the question whether it is better that partners or the consortium take the loans. At first sight partners may tend to reject undertaking monetary obligations, but such an approach may help the sustainability of the consortium, strengthen the consortium cohesion, motivate the partners and may disperse the risks of failure. It is reasonable to believe that the partners who are the decision-makers in the consortium will understand the financial needs of the consortium better than every bank or investment house.

Financial tools

Here are few suggestions that may help tailor financial suit to innovative transportation implementation.

  • Interests oriented financing - Financing the consortium components may indirectly finance the consortium. This method can be replaced by financing the consortium under the personal guarantee of the owners.

    Financing interests in the consortium may have some advantages on certain conditions. In this way owners can divide the risks of the investors and afford better financial conditions, or take advantage of specific relative advantages.

    It should be remembered that we suggest that the partners in the consortium will retain part of their interests, which may be broader than that of a local consortium.

  • Risks oriented financing - Risks frighten capitalists, but there is always a pertinent gambler or an appropriate cost for risks. In the early days of hazardous shipping, capitalists developed methods to finance risky voyages by charging high premiums that evolved around to maritime insurance. The limited company is an old tool to dissipate business risks by many shareholders. The stock markets evolved many forms of securities that divided financial risks, and the risky modern high tech markets created elaborated venture capital funds.

    Implementation of an innovative transportation system should tailor the financial suit in accordance with the curve of risks and chances that are mentioned in this site.

  • Time oriented financing - For different periods there are different types of loans and securities. Long-term loans may be secured by mortgage or floating charge and short-term loans may be secured by pledging rights or personal guarantee. Professional financiers may suggest and tailor different loans with various interest rates for different periods, by way of long term loans or recycled short-term loans.

  • Targets oriented financing - Targets oriented financing refers to financial sources that may wish to finance special targets, which cannot be protected by a defined interest owner. Environmental organizations may contribute money in order to develop environmental friendly transportation systems or specific components in the system. Road accidents campaigners may wish to contribute money for safety components. Welfare organizations may wish to contribute money that will finance implementation of transportation systems in regions that suffer from social distress. Government or public resources may finance and subsidize the general welfare.

  • Leverage strategies - Innovative systems need a high rate of financing in the earlier stages of research, development, trial and error. In the long run, benefits may be revealed. It is not easy to find someone who will undertake financial risks, when the costs and risks are great.

    Stock markets are familiar with financial tools and strategies to lever long-term anticipation and hopes into short or medium term advantages. According to the risk and chances curve, described in this site, long-term finance may be considered more secured that short-term finance. In accordance with this assumption long-term finance may be used as a lever to the short difficult periods.

    In stock markets the value of corporations and shares increase by positive expectations a long time before actual revenues are collected. Financing local innovative transportation organizations by stock markets may yield significant benefits. Financing companies of partners in joint entrepreneurship may yield a double advantage and a double leverage for the partners. If one of the partners will present promising technology in a local vivid process he demonstrates potential in huge future global markets.

    In a common manner of business, the equity value of a sound corporation grows with the corporation's accretion and its performances. It can be assumed the innovative transportation consortium value and profitability potential may increase during advancement progress toward the goal and as an effect of integration between its' partners. This process may motivate the partners work with "eyes directed toward the future", while those who wish to immediately "harvest fruits" from their investments, may sell their shares or credit rights.

Responses and comments would be welcome at rothar@inter.net.il
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