Table of Contents:
Investors
KookyPlan presents Venture Capitalists and Angel investors with a clear guide to identifying trends in new technologies, taking advantage of new trends, and looking in new markets
Risk capital meets new ideas every day in the form of angel investors, venture capitalists, and also in Private equity. These key sources of funding are instrumental in driving forth innovation and helping entrepreneurs fund the new development of innovative business models. But when talking about investing, what are the choices for an investor, and how should investments be evaluated. Beyond just our Venture Capital Method of Valuation, there are many choices for investors, such as...
Why should investors invest in private companies? Why do Private equity investors invest in companies? the only reason: to achieve higher returns than can be achieved in the public stock market. If not, then there is no reason to take on the additional risk associated with a private company. Private investors should expect a risk-premium. Returns should be higher (see our discussion on ROI return on investment) . See our discussions on venture capital, private equity trends, and asset management
Why invest?
In the end, all investing is a question of what to do with money that you have. This seems like a good problem to have, but it is one that many people spend alot of time worrying about... am I making the best investment that I can make with the amount of money that I have. The alternative is to put your money into a savings account in your bank, and earn a few percentage points. Or, if you are risk-adverse, you can put all of your money into a risk free instrument such as a Treasury bond. But, if you want a better return, you need to invest.
1. In projects
see our discusson on Capital Budgeting (project finance):
Brief summary: Project finance decisions (project finance) is the decision process about whether to invest in new machinery, building plants, expanding warehouses and so on. For this kind of project investing, people will generally look at NPV (or net present value) analysis to decide if the project should go forward.
This is different than the capital structure decision (how much debt should I take on), the net working capital decision (how much cash do I need to finance ongoing Operations), the credit management decision (how much to invest in customers), and Human Resources decision (how much to invest in employees).
2. In the public (stock, or bond) market
For most people, however, investing also includes "the market", meaning investments in stocks, bonds, mutual funds, etc. This is how most people plan for their retirement, and how most companies invest their excess cash, so as to make a better return on their cash positions. International investing this way is often called "portfolio investing". This is the wall street finance that you read about and is generally summed up as "asset management".
see also:
Financial markets
Financial Services Industry
3. Why should investors invest in private companies?
why to Private equity investors invest? the only reason: to achieve higher returns than can be achieved in the public stock market. If not, then there is no reason to take on the additional risk associated with a private company. Private investors should expect a risk-premium. Returns should be higher (see our discussion on ROI return on investment)
see also:
venture capital
private equity trends
Private equity and venture capital in Emerging Markets
private equity and economic development
Valuations: ie "how much should you invest?"
Investment Analysis
Valuation
International investing
see our main page on emerging markets for more
Portfolio managers around the world have been pouring money into emerging market economies. This is good in that it helps these countries develop, but bad if the portfolio money is withdrawn suddenly, as we have seen with the crisis after crisis around the globe caused by "fast money". This trend of hot portfolio money is troubling not only for developing nations but for the US as well as globalization has increasingly meant that what happens in one country is immediately felt in another.
Rather than in London or in New York, many companies are listing in emerging markets, and raising domestic money in emerging markets them selves. This is an interesting trend, as the worlds center of gravity seems to be shifting....
Private-equity funds focused on emerging markets raised a record $59 billion in new capital in 2007. This figure represents a 78% jump from the $33 billion raised the prior year. More than $118 billion has been raised in emerging-market funds in the last three years. MarketWatch (02/29)
The two distinct fields of microcredit and Microfinance are hot right now, as investors seek ways to not only find attractive returns, but to also invest in projects with unique social appeal. Seeking economic development of some of the poorest regions on earth, this movement was initially brought to the world stage by the incredible efforts of such groups as the Grameen Bank of Bangladesh and Professor Prahalad of the University of Michigan. Since then, there has been a boom in the credit markets to service the bottom of the pyramid marketing, as banks, individuals and commercial stores have collectively realized the value that can be obtained by extending credit to the emerging consumer classes. In response, we are seeing how the new opportunities with consumers of low income is transforming commodity markets around the world, as projects such as the Bolsa Familia in Brazil spur a whole generation of buyers to seek new automobiles, washing machines, etc. See our discussion on the Rise of purchasing power in emerging markets
Guidelines for investing:
The key to making successful investments is to identify opportunities that others do not see, or that others are not able to capitalize upon. To help you identify these opportunities, we have been looking at some of the underlying trends in the world today. Read it and see what you think. Put together the trends, and invest wisely...
Investing 101
There is a relationship between risk and expected return. The more you want in returns, the more risk you need to be willing to take. But, that said...there is an expected amount of risk for any return. Risking too much is not a sign of bravery, its a sign of stupidity. When looking at risk and returns, you should understand the CAPM - Capital Asset Pricing Model - to estimate the cost of equity . Within this model, you should use the T-bills rate of return as the "risk-free" rate, and then add a risk-premium.
see more sources of info below... (in our "links" section)
Some Strategies:
1. Speculating: is investing because you think the value of an asset class will increase. Perhaps you think the value of the US dollar will increase, or perhaps you think a companies stock will decrease. You can use many financial instruments to speculate on changes.
2. Hedging: is investing when you want to protect the returns of another one of your assets (or investment). For example, you might be investing in a project overseas, but you are afraid that the currency might change and you might loose your assumed profits. You can use hedging to protect yourself against the change in currency rates. In addition, hedging techniques can be used for agricultural producers, and just about any industry, and with any asset class to protect yourself, and to reduce some of the risk of investing.
Timing of Cash Flows
One of the key concepts of finance is that cash today is worth more than cash tomorrow. This is because cash today could be invested and grown to more cash tomorrow. Also, its becasue there is no risk in having cash today, but a cash flow tomorrow has some risk (perhaps the person wont pay, or maybe the money wont be worth anything tomorrow?). When valuing a project (or a company), it is important to look at the value of their expected cash flows.
One of the original goals of KookyPlan was to establish a free forum where MBA students could openly discuss business models, using this discussion to help them as they launched their own ventures. This analysis was to serve as a form of free consulting for startups. Since that time, we have expanded to cover much more, but we still have the forum open for any one that wants to contribute. The goal is to outline the various business models such as: Internet-based business models , and more....
Clean-tech and environmentally conscious investing
Investments in clean technologies are alternatives to coal and the oil industry. Within the energy industry, there are many business models being explored as there are a confluence of factors that are combining to make this a very interesting sector. To begin with, the high price of oil, and the US fear of dependence on foreign sources of energy are resulting in much renewed emphasis on exploring new methods of powering our cars, homes, airplanes, and so on. Also, as the fear of global warming reaches a critical mass, we are seeing an increased consumer demand for clean tech products.
Investing in socially good projects
Im particularly interested in using technology and innovation to bring new services and products to less developed areas in Latin America. Some of the projects that Ive explored recently, and find particularly interesting are the OLPC project which aims to bring one laptop to each child (at a cost of $100+). Other projects that we are highlighting are the municipal wi-fi, and the potentials that WiFi in general have to bring broadband internet connections to poorer regions. In addition, we are looking at projects involving peer-to-peer lending, or microfinance, with such companies as Kiva leading the way in innovative business models that should help lift millions out of poverty. If you have any other projects that you think we should highlight, please feel free to add them here....
making technology affordable
One of the most interesting developments in the past 10 years is that technology is no longer developed first for corporations (who were the only ones that could afford it), and then later adapted to be marketed to consumers. Nowadays, most of the best innovations are marketed directly to consumers, and later, if its is first successful with consumers...then it is later marketed to corporations. This is what we see happing with social networking sites such as Facebook, as well as blogging, wikis, collaborative web tools, and so on. But, beyond the world of the internet we are also starting to see massive price drops, to the point where technology is starting to be developed not just for the rich world, but also for the less developed nations as well. The historical international product cycle is being inverted as products are being first developed to be marketed to Latin America and Asia. We see this happening with such companies as Quanta Computer, and Asustek who are marketing a flash based laptop that retails for under $200 and is geared to compete vs the OLPC project. There are many other examples of technology developments that are being marketed globally, and skipping the traditional product life cycle. If you have any insights you want to add, please feel free to add them here ...
internet
We are keeping an eye on Silicon Valley and watching for developments in internet technologies that might be transferable to Latin America. We are keeping a list of tech trends to watch in order to help non-techies understand some of the developments that are occurring in the world of high-tech. We are doing this because we believe that it is important for business leaders (in any industry) to keep abreast with the latest developments in technology so that they can see both the threats, and the opportunities that occur in global business. But mostly we are doing it because we believe that it is important to do so. We hope you enjoy, and that you might help us keep this list up to date...
travel
The global travel industry is vitally important to many countries in the Caribbean and Latin America (as it is to cities such as Miami, Orlando, and many others in the USA). Surprisingly, the number two industry in terms of dollars spent is "Tourism", following just behind Aircraft, but ahead of the Oil industry, and the arms trade. People around the world spend at least one trillion dollars on travel each year. Travel and tourism comprise the world's largest industrial sector and employ over 300 million people, nearly one-tenth of the global work force. However you count it, there is a massive amount of money to be spent each year on travel, hotels, cruises, and so on. Because of the importance of travel industry to so many places in the Americas, we felt it only appropriate to highlight travel on our site. Please feel free to add any comments about the industry, or about how it is important (or not) to your place.
There are new opportuntities for investing (and for starting up businesses) based on shifting underlying trends that are shaping our world today. These are the important global trends that every business person should be aware of. These are fundamental underlying trends, which means that they are important, but might not be obvious. Many trends are interconnected, and have global implications. Not paying attention to the development of global trends in can come back to haunt any business person, and so... we have dedicated ourselves to summarizing these events in simple language, and we are trying to show how these events might be important to different regions, and to different industries. We are also watching tech trends to watch , telecom trends ,venture capital trends and more trends...
Links from KookyPlan
Highlights: asset management, ETF exchange traded funds , Investing in emerging stock markets , financial statement analysis , Venture Capital Method of Valuation , Finance , raising money , Venture Capital , Financial markets
Private Equity
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trends
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Academic resources for investors
Investment Analysis
Valuation
More Links from KookyPlan: Valuation tools for investors and Entrepreneurs
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