GET FIRST-HAND INFORMATION INTO SMEs' DRIVE, CREATIVITY, PASSION, USPs, IPRs, DISRUPTIONs, CHARACTERISTICS ETC.
FOR INVESTORS LOOKING FOR INVESTMENTs INTO SMEs/SSI
1. What is my expected level of involvement in a typical SME/SSI investment*?
Involvement in a SME/SSI inadvertently corresponds to how the investment was done. E.g., investment through a VC would allow limited interactions with the firm. In a Seed/Series investment, the investor is guaranteed a stake in the company and they have an opportunity to participate in decision-making, alongside the management. And, a crowdfunding investment also receives an equity share but it wouldn't be the same in terms of control as a seed/series investment. It is key to understand what level of control one aims at, or synergies with his/her own firm, for that investment.
2. What time-frame should be considered for payback/exit?
There are hundreds if potential investment opportunities one might be looking at, many that might take years to breakeven, yet some making enhanced scalability and value creation. Investment ought to be considered a long-term strategy, best done by making a strong portfolio of typically 5 (min 3) to 20 small ticket size investments gradually narrowing to preferred zone of 5-7 over 5-10 years. However, it is important to have a fair comparison for that and gauging investment expectations with ground realities. Some amount of strategic decisions viz. a large successful company gaining entry into another region/state can make quick progress via an existing SME/SSI investment, over entering market anew.
3. How can I evaluate the SME/SSI's track record?
We make it easier to approximate how well your investment is likely to fare via our benchmarking and comparison models, calculating firm's burn rate, or simply what IRRs/Profitability/ROIC will that firm bring for you by deep diving into company's operations, economies of scale and scope, order fulfilment, vendor associations, market cap etc. (over 200 factors to compare with). This might translate into your due diligence, guided efforts towards that investment and availing expected returns in receipt to your payout. All SMEs/SSIs are associated with us in the long-run for you to be able to do your assessment and be able to decide in shortest possible time.
4. Expected Return on investment?
For an equity investor, typically a 30% to 40% YoY is expected, depending on sector preferences, actual company performance assessed on gain/loss of equity share. A higher degree of risk directly impacts investment beta (risk vs return) and cumulatively enhances the expected return of investment (a statistical outcome for a conditional probability scenario of investment). Our fees associated with the investment is not only theoretically decided but also based on success of the company and its ability to perform as per pre-defined benchmark. Typically the fee structure has two components i) Annual management fee related to investment and ii) A fraction chargeable on improving the benchmark of the investment in question. Or, in case of management of portfolio, its is fraction of average return on portfolio, also called alpha.
5. How can an investment enhance my portfolio or help me diversify?
Diversification is key to investment portfolio, to put it simply with an example.. out of your five invested SMEs (an average ticket of 2.5Cr), two perform low (at 17% ROICs), one tops (with 45% ROIC), a third one given negative expected returns (of 14.5% against as assessed 15%) and the final is at par average (at 26%). The net portfolio return is ~ 23.9%, which is comparatively much higher than BSE index @13.2% annual. While investment risk is as difficult to pre assess, a fair amount of expertise can be achieved by regular investment, partial exit in case of defaults, or slow down, changing over preferential sector, changing ticket sizes etc. Ask us more here
With most asset classes it is easier to spread the risk, however SMEs/SSIs require a different thinking because of its risky proposition. As a thumb rule, the more firms an investment is done, the better the odds of achieving desired ROICs while spreading out one's risk.
6. How do I exist from my investment?
Not only do we aid investor-investee matchmaking, we aid the union successfully through a clear exit for all investments, particularly important to meet SME/SSI reach funder's milestones. In case of a success, the company is automatically re-valued at a high for a larger, VC/PE, pool of investors etc. to takeover, simply by purchasing your stake or buying into preferential. Either case, the more outside investment comes in, the more will an Investor's share grow (a little is also added to it). Or, the company buys back its stake for selling it at a higher price. Or, you are able to convert a default in investment into any associated gains, such as a loan (@16% rate or interest), conversion into additional stake by readjustments of option pool etc. In a nutshell, the company gains as much out of the investment as the investor.
7. Are government subsidies applicable for investment in SMEs/SSIs/Startups?
Investors have an excellent opportunity to not only invest and save taxes, but also claim subsidies from the invested firm's as their business sector. This might add on substantially more for some regular investors, it gives an assured 10%-15% additional incentive/tax rebates on net.