Thundering Herd Blog

Say again – what are my investment Exit options?

Wednesday, April 20, 2016

How many of you have been pitched a brilliant idea recently offering comparisons to the likes of LinkedIn, Uber, and Paypal no less? You flip over to the ‘exit options’ section where your typically given just two (2) options for an exit: i) a Trade-Sale, or ii) a Stock Exchange listing – both at hefty multiples – why, well because that’s just how it happens…here take a look at some recent examples of ‘similar’ companies that barely resemble what we are, do, are capable of, or will be…apparently!

The notion of serious entrepreneurial business acumen goes by the wayside in some of these pitches that give little regard to running a profitable business, hitting key financial milestones or returning capital to investors - it’s striking more of a ‘hype valuation’ chord than ‘achieving projections’ valuation chord which will not end well when the music stops for many of these ventures – which only leads to the next question of how many investors will want to get up and dance to the next song in this already fragile and growing early stage investor space.

Stop the fairy-tales – we get it, raising capital is difficult, to raise capital one doesn’t have to sell their soul and sell pork pies either – your High Net Worth Investor is seeking exclusive opportunities that the average investor on the street can’t access, they are also seeking an above average return on their money. Sell them a reality and a potential to make a return on their investment, not a pie in the sky pipe dream and toilet to flush their money down that you won’t back with your own hard cash, for if you truly believed in your numbers (it’s a no-brainer) this would be a friends and family deal only and next time we saw your name it would be on the next BRW Rich List.

Fact - you can still achieve superior returns and valuations by running a lean profitable business that in time can support returning capital to shareholders making them equally satisfied. The business also equally becoming more susceptible to a genuine opportunity of acquisitions or corporate event – particularly if run well enough to spin off attractive free cash flows to shareholders.

Suggestion - Some genuine entrepreneurialism and business savvy can go a long way when it comes to seeking investor support. Imagine the support a business would get from investors seeing that wages and shareholder distributions grew in tandem with profit – after all your all starting with equity and more often than not it’s the investors who’ve risked more in terms of cash. Investors want to fund growth, not salaries and pipe dreams – show them how they are realistically a chance of getting their money back on assumptions you make and would be prepared to back with your own hard earned money.

Through Thundering Herd our Investor base is sophisticated enough to understand the risks associated with early stage investments. They are also professionals who have seen multiple pitch decks and have been posed countless promises. To stand out from the crowd when pitching them an opportunity try and take the business approach rather than the sales approach and see how you go!

Some things to take away with you:

1. Focus on delivering on financial projections.

2. Focus on creating a profitable business.

3. Be prepared to take a cut if you don’t deliver on your projections.

4. Don’t let excess i.e. salaries stand in the way of profitability and shareholder returns.

5. Your financial model is not a beginners Sudoku game – don’t throw in numbers and hope it will work out.


Joe Galvez is the Founder of Thundering Herd