It is amazing how different brands can combine their appeal to bring compelling offers to customers. The latest example I have seen is Lego Batman game on the iPhone http://feedproxy.google.com/~r/Venturebeat/~3/swne3jAFI2g/.
Lego, Batman and iPhone - now there is a combination of admired, attractive brands. But it does make me wonder which customer segment is going to be served by the game they are all involved in. Lego and Batman will appeal primarily to young children up to, maybe 14 years old. But how many of these will also own or have access to an iPhone?
Can combining brands help each of them extend the reach of their core market? Maybe, though in this case, I have my doubts
Wednesday, December 17, 2008
Tuesday, December 02, 2008
The End of Exit
I have worked with private equity, venture capital and angels for the last 8 yrs and also helped and advised firms negotiating for investment from them. During this time, one of the most important questions (if not the most important one) from investors has been “What is the exit strategy”.
This forced companies requiring investment to identify major players in their industry who might want to buy them up in a few years if they grew as projected. Since far too often companies do not look at how their industry is structured, to understand who holds the power and what they might do to hinder or help start ups, this analysis was worthwhile in itself. Whether or not it then led to sensible forecasts of who might buy whom in three to five years ahead was another matter.
But the exit question also often led to wild guesses about the possibilities of floats as well as takeovers, given that the companies had no real understanding of the ups and downs of the stock market and of the likelihood that the appetite for mergers or flotations would be strong a few years in the future. Of course, in times of boom and bubble, the forecast was for a dramatic sale or entry on the stock market after only a short time, when conditions were assumed to be the same.
Now that recession is biting and stock markets have plunged, predicting exits looks even more difficult and hard to justify. (Though, ironically, it is probably now that we should be confident that in a few years time, the market will be recovering and exits will be possible. So should we look to change the exit question?
Why not justify an investment based on the profits made and the free cash flow generated? If investors take the risk of investing, for example, £1M for 30% of a company that will grow to £20M sales and £2M profits in 3-5 years with reasonable growth thereafter, they could justify their investment by 15%-20% return on capital plus the ability to sell a profitable company to free up their money but only when the market is favourable again.
The sticking point will be with investors losing their focus on getting back their capital with a good return after only a few years. Venture capitalists depend on a reasonably quick turnaround to be able to return money to their own investors.
But maybe this is the time to focus on longer term investments in the whole market. After all, investing in a company that makes good profits and pays good dividends is investing in a company that can be sold at a good valuation at some stage – it is just a question of avoiding the fixation with when the return will be.
Moreover, the very fact of paying less attention to when the return will come and more to growing profitable businesses actually makes it more likely that an exit opportunity will crop up sooner.
This forced companies requiring investment to identify major players in their industry who might want to buy them up in a few years if they grew as projected. Since far too often companies do not look at how their industry is structured, to understand who holds the power and what they might do to hinder or help start ups, this analysis was worthwhile in itself. Whether or not it then led to sensible forecasts of who might buy whom in three to five years ahead was another matter.
But the exit question also often led to wild guesses about the possibilities of floats as well as takeovers, given that the companies had no real understanding of the ups and downs of the stock market and of the likelihood that the appetite for mergers or flotations would be strong a few years in the future. Of course, in times of boom and bubble, the forecast was for a dramatic sale or entry on the stock market after only a short time, when conditions were assumed to be the same.
Now that recession is biting and stock markets have plunged, predicting exits looks even more difficult and hard to justify. (Though, ironically, it is probably now that we should be confident that in a few years time, the market will be recovering and exits will be possible. So should we look to change the exit question?
Why not justify an investment based on the profits made and the free cash flow generated? If investors take the risk of investing, for example, £1M for 30% of a company that will grow to £20M sales and £2M profits in 3-5 years with reasonable growth thereafter, they could justify their investment by 15%-20% return on capital plus the ability to sell a profitable company to free up their money but only when the market is favourable again.
The sticking point will be with investors losing their focus on getting back their capital with a good return after only a few years. Venture capitalists depend on a reasonably quick turnaround to be able to return money to their own investors.
But maybe this is the time to focus on longer term investments in the whole market. After all, investing in a company that makes good profits and pays good dividends is investing in a company that can be sold at a good valuation at some stage – it is just a question of avoiding the fixation with when the return will be.
Moreover, the very fact of paying less attention to when the return will come and more to growing profitable businesses actually makes it more likely that an exit opportunity will crop up sooner.
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