A mature enterprise or a no-name startup? No difference; they both know that the process of finding the right door and the right person to write a check is tough. Investors keep in the background and don’t lay their cards on the table. However, there is a chance to plunge into the investment ecosystem through the eyes of an expert who is building cross-border investment bridges.
Emerline сaught Yelena V. Zemtsova, CFA, literally between Kazakhstan and Singapore. Knowing firsthand about the investment specifics in the U.S., France, Luxembourg, and Singapore, Yelena is currently focused on the international investment facilitation in Eurasia. She knows what investors want and how to build the bridge between their expectations and reality.
Here are facts, observations, and tips from the person who knows investment strategies inside out.
I feel like Marco Polo. My role is to help international investors — small and medium enterprises, high-net-worth individuals, or family offices and asset managers — understand about Central Asia and Kazakhstan in particular (what is happening there, what the investment climate is, culture specifics, etc.) and accompany them if they want to invest.
Never forget that the first step of an international investor will be to evaluate the competitiveness of the region. Before evaluating the opportunity in itself, there are three sine qua non conditions each investor needs to be comfortable with: a) their investment is not going to be expropriated; b) they will not face under-the-table practices; and c) they will be able to export the profit back to their country.
It's better to prevent risks than fix them later.
Various risks will be evaluated in every manner, as they should be commensurable with the expected return on investment. The first one is the aforementioned country risk covering politics, corruption, and economics, including currency risk with the possibility of devaluation of local money, and inflation risk.
Specific industry risks go next. And now we come to the company risk. Here is an interesting mix: How good is the company’s management team? How experienced and well-connected are they? How trustworthy is their background? Therefore, understanding key personnel dynamics is number one criterion in evaluating the company, and then investors take on examining processes, technologies, structure, legal documents, and equity risks with a complete proposed deal analysis. Devil is in the detail, and that is what investors should never forget.
Evaluating technology is a separate issue. Investors look at the inventor or the producer of the technology and make sure that company's business is based on the state-of-the-art, disruptive technology. Each investor needs to pay great attention to the due diligence. Of course, there are those who exhibit herd behavior, investing just because everyone else does, but it is always recommended to think for yourself before putting your money in any venture.
Startup specifics, the power of connections, and a tricky numbers game
Startups. That is a field of work for venture capital (VC) firms, whereas most of my investors prefer private equity (PE) investments and are oriented towards companies that broke even or small and medium enterprises (SMEs). The risk of not receiving the money back is quite substantial in both PE and VC investments unless you diversify across many players. Even then, there are no guarantees, though risks associated with VC are generally higher than risks in PE.
To make the VC portfolio more successful, one could follow someone else’s model, let’s say, a recognized investor from Silicon Valley who has made their name investing in entrepreneurs who then became successful. One could study when and how that person invested and try to replicate the model.
Tо have connections everywhere is of vital importance. They work everywhere in the world. You will not find the information in newspapers that someone is going to invest into this or that startup, so you have to know them personally if you wish to co-invest.
Making money implies playing the numbers game. Imagine an enthusiast coming to an investor saying they have a great new idea of an electrical vehicle that can go all the way to the space and come back, and at the same time improve our understanding of the universe.
As the investor is most likely not a specialist in each and every technology, especially super high-tech, they need to involve experts who will consult them on the specifics of the leading tech in each field, for example, electrical vehicles, solar energy, AI, blockchain, geophysics, etc. Overall, they have to invest in many technologies to reap portfolio diversification benefits.
The success formula is easier than you think.
Even the tech experts can be wrong because sometimes the success is not about the technology itself, but about the marketing. I mean two technologies can be equivalent, but one tech will have a better marketing and investor relations, and it is going to conquer the world, while the other one won’t.
Numbers game refers to startups as well. Do not underestimate the amount of time required to raise capital. I hope you are not going to see just one venture capitalist thinking that they are ready to write you a check right away. For sure, you will need to knock on hundreds of doors before you knock on the right one and manage to convince that firm to invest in your venture.
Tips leading to success are a no-brainer. The first thing is to have a good product; the second is to be able to sell it, i.e., you need to have confidence that your product is the best and it is the future.
Next, assemble a team where you have business people as well, not only scientists or engineers. Let the scientists do the science and let the businessmen run the business — it will be a better play. The latter make sure the company is going to be workable, and then you make the case, write a pitch (long and short versions), submit it to the decision-makers and hope for the best. The more pitches you will make, the more confident you will feel, and the better outcome is going to be.