how to develop an investment strategy
TRANSCRIPT
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How I decide what to invest in
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Investing in private equities — that is, buying shares of privately owned businesses — is an exciting and often high-return yielding endeavor…
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…It can also be quite difficult, if you don’t have a smart strategy and know how to assess whether a particular business is a good investment.
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Key elements of a private equity investment strategy
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Diversify investments across a number of businesses and sectors to mitigate against risk -- i.e. don’t put all of your eggs in one basket
Kauffman Foundation: 27% IRR when angel investors spread investments across 25 - 50 businesses
“Don't bet the farm.”-- Eli Broad, the only man to build two Fortune 500 companies in two industries
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Out of ten investments: 5-6 will fail; 2-4 will exit with limited returns; 1-2 will hit it with high multiples (10-30x ROI)
You need a significant number of diversified investments to optimize returns
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Look for deals with “home run” potential -- 10% of deals generate 90% of the returns
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Invest in what you know — invest sectors, industries, business types that you know and understand, which will allow you make more informed decisions
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Engage with entrepreneurs -- ask questions and get explanations so you feel comfortable investing in both the business and the entrepreneur
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Do your own homework and spend time assessing the investment opportunity….
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What really matters when assessing a business’ “investability"
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“In a startup, no business plan survives first contact with customers.” — Steve Blank, professor of entrepreneurship, Stanford Business School
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All companies have risks and none are perfect for investment
Trust your instinct
"First of all I trust my own instinct, experience that I gained over years and feeling when the moment is right for buying shares." — Alisher Usmanov, Russian business magnate
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Macro factors
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Scalability -- can the business grow quickly, while keeping costs down?
Look for high growth businesses -- can scale revenue and margins; exit defined at outset (who will buy, why when); need capital to grow
Eureeca case study: Nabbesh.com — digital marketplace, low operational costs, huge market potential
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Attractiveness and viability of the market — Is there a large market for the product or service? Is a clear gap being filled?
Value proposition must be clear and solid go-to-market strategy defined
Eureeca case study: Search in MENA — B2B marketplace that brings businesses online, 85% of regional businesses still offline = filling huge void in market
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Is there an attractive exit strategy? — Who will buy the company? When will they buy it?
This needs to be defined and established from the outset
Eureeca case study: Abjjad — Goodreads of the Middle East, Goodreads acquired by Amazon for $150 - 200 million, Abjjad setting up itself to be acquired by major player
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Company-centric factors
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The management team — they will be at the helm of your investment, and largely determine whether it succeeds or not
“One invests in the guy behind the deal, above all else." - Randall J Kirk, CEO Intrexon
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Have people you trust invested in the deal?
What about investors with lots of experience in the business’ sector/industry?
Eureeca case study: Foodlve.com — Japanese VC firm invested heavily in Foodlve.com (a former Oasis500 company) —> exhibits attractiveness of the deal
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Valuation — Is the entrepreneur offering a fair valuation of the company? If it’s too high, you’ll be paying too much for your shares and reducing the multiplier when exit occurs.
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Term sheet — Is the entrepreneur trying to take advantage from the beginning with unfair terms? Keep this in mind. Read carefully!
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How does Eureeca improve the private equity investment process?
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Equity investment democratised -- no longer limited to the wealthy few and financial institutions
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Access to steady deal flow of exciting vetted, high-yield potential investment opportunities
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A secure, regulated investment platform that handles your investment all the way through the issuance of shares
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Ideal way to diversify your investment portfolio by adding additional asset class (private equities), across a
variety of sectors
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Can share in the success of your favorite businesses
Eureeca case study: Jobedu — A highly popular consumer brand, loyal customer base —> funded in record-setting four days
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Can cultivate a following among other investors on platform
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Eureeca makes the investment process easy:
• Invest using your credit card • Communicate with entrepreneurs seamlessly • Invest from your living room
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