Business Fundamentals |
The very first question you will be asked by an investor after you have made your pitch is “What is your exit strategy?” As an investor, it is easy to get your money into a business, but you always need to know how you are going to get it out. Typically, there are four ways an investor will get monies out.
The good news, sir, is that Harris was able to sell off our losing stocks. The bad news is that Simpson here bought them from Harris. Most companies pitching will claim that the exit strategy is a listing. Speaking statistically, the odds are against this. Most companies will either fail or will be involved in a trade sale. I am always impressed by a business plan which says that the exit route will be a trade sale – and they have named who the potential buyers are and (there’s more) why they would buy the business, what would make the business attractive to them and finally, what kind of valuation they could expect to get! In one case a company had even got an expression of interest from a potential buyer before they had started up (Needless to say I invested in that one!) That is great, but a listing on a stock exchange is still seen as the most likely route for many companies (although in reality, it will not be). For a small business, you should be aware that being listed does add a great deal of administrative burden and you will be tightly governed in terms of what you can say when you say it and to whom you say it first. I think some businesses consider this option too lightly. As a way of reducing the burden, companies may seek a listing on the junior markets such as AIM (Alternative Investment Market) or PLUS (where the size and cost requirements are considerably lighter). I have personal experience of four companies I have invested in being listed and I think I would say that being listed has not been a pleasant experience for me! The problem is that you realize at the point at which you invest that you are in it for the long term. Once you have a share price which fluctuates on a daily basis, no matter how hard you try, you do get dragged into the sense of measuring your daily ‘wealth’ by the stock price and the biggest issue for companies with small market capitalizations is that the markets tend to be very illiquid. That is, the price can move significantly on a very small purchase or sale. In one of the companies I invested in, a shareholder sadly passed away and the trustees of the will had to sell their stake which was worth just over $5,000. As a result of the sale, something like $1m was wiped off the value of the company! So the value of the company bore no resemblance to how the company was performing. This can be very frustrating to all those involved.
If you believe in the Efficient Market Theory, you would argue that the market will correct itself quickly. With a small company that is not the case as there are not enough analysts covering the stock to keep people informed.
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7/20/2020 4 Comments I Need a Business Idea !“I would start a business if only I could come up with an Idea” Here’s an idea for a business. If I could collect a pound for every time someone has said that to me – I would be, well, better off than I am now! In all honesty, I hate hearing that phrase. What makes people think they have to come up with a new idea? Have a look at the Sunday Times Rich List. There are 1,000 people in there. But how many of them have come up with a new idea? Very few is the answer and yet most people that I come across still say that the only thing holding them back is that they cannot think of a new idea. I have a challenge for every person out there who wants to start their own business (and is serious!) and says that all that is holding them back is an idea. If you follow the guidelines I will give over the next few weeks on how to read a newspaper and the Economist (it is my bible!) I will promise you that you will have lots of ideas that mean that this time next year you will have no excuse not to have started your own business! Some promise – but as I see it you have nothing to lose. The only person to lose would be me as I would have lost credibility with you the reader. I will start issuing my guidelines from tomorrow – so please do drop in again. In the meantime, I would like to mention another bugbear of mine; exhibitions and shows aimed at ‘inspiring success and business”
They are a racket – please stay away from them! I have probably met close to 500 Entrepreneurs in the last ten years or so. None of them were inspired to start a business by attending a workshop. These events are great as pick-me-ups – but if you are serious about starting something you will not need to be inspired to start a business! Don’t get me wrong – I like these events and I think they can be a tremendous boost for you when you are feeling a bit zapped of energy, a year or so after you have started your business. But if you are low on energy to start a business – trust me – running a business is not for you! |
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August 2020
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