February 26, 2008
The merchant bank: a classic business model for a contemporary market By Tim Ferguson, Founder, Chair and Managing Partner
Lots of entrepreneurs need exposure to critical thinking…The merchant banker who used to say, “I understand your business and what you want to succeed, but I see the vulnerability of your business.”…The wisdom stuff. Just like VC firms have geniuses in residence, entrepreneurs need access to venture wisdom. It can be as simple as, “Do you really know how to do fund-to-flow management, or inventory flow to cash flow? Have you studied that?”
Jeff Swartz
CEO, Timberland
Introduction
The merchant bank is a classic, time-honored business model that has given birth to and nurtured some of the world’s most powerful financial institutions and businesses. The foundation of this success has been the capacity and willingness to be nimble and creative, and to take risks in order to serve their clients. As part of this tradition, the merchant bank has served as a deeply trusted advisor for its clients, blending sound advice with appropriate finance. Merchant banks were closely intertwined with their clients, supporting their growth and growing with them, adding businesses and services over time to address client needs. Next Street’s business model is the merchant bank.
I started my career by joining one of London’s oldest and most respected merchant banks, Hambros. So for me, merchant banking is second nature, and an intriguing blend of art and science. And I believe that the defining elements of the merchant bank are its attitude of flexibility and its function as trusted advisor – which also render it a good match for the needs of today’s promising small businesses in inner cities.
The merchant bank model focuses on the client’s needs and strengths, rather than shopping for convenient, lucrative clients that fit the institution’s pre-existing profile and mindset. This is the mission of Next Street: to bring this model to a marketplace that has rarely had access to it before, changing the rules of the game in that marketplace.
In this Perspectives piece I’ll explore how and why we made that choice, looking back at the origins of merchant banks and how the Next Street model addresses the unique needs of a promising new market.
