We offer small, medium, large sized businesses get their growth strategy right. Let us first understand the problems businesses face.
– Lack of awareness that with BSE SME, it is now indeed easy for any business to raise funding. This fact can be used by small businesses as well as large corporates. It can help large corporates as it can help them initiate new businesses and be confident that the new businesses too will be able to scale by themselves using external capital and hence their investments in initiating new businesses as subsidiaries can give high return on equity. See rules here.
– Lack of awareness that entrepreneurial initiatives in new areas can give better return on investment as external capital available for a new business in proportion to its existing capital is much higher than for an established business.
– Slowing growth once the company matures
– For a business that has no potential to expand horizons in current venture, it should always be on the lookout of new entrepreneurial opportunities and keep initiating new businesses if it finds good business plans and teams to invest in and hence essentially function as a parent company which functions in its core business area and aggressively keeps starting new ventures as subsidiaries.
– Insignificant return on investment by investing in its own business beyond a certain point
– Risk of lack of diversification by being present in just a single business line or a single industry
– Lack of leadership capabilities to start new businesses beyond the core skill sets of the company
– Inability to diversify risk in case parent company decides to start a new business as to diversify risk, a business needs to put in money to initiate different businesses in different industries which is just almost impossible
– Lack of availability of readymade opportunities and teams to lead in new business areas
Unique Finance and Risk-Return Strategies
Let us analyse understand how high business growth and high investment returns can be generated using the right strategies and understand this in the framework of risk-return payoffs. We give four example below. In these examples:
It can be reasonably expected that actual returns observed over a large number of different businesses following the practices mentioned in the examples below can expect to show results in line with theory.
Assumptions: Let us suppose Return40 supplies ready made business plans and leadership teams to companies in the following examples. On average, let us assume an average amount X is invested as initial capital in starting a new business venture proposed by Return40. It is important to remember that funding is easily available for small businesses to grow using the amended BSE SME rules here. However, we can naturally expect that some business may not show as much as success as expected and some business may need to liquidated if they are not successful and residual funds diverted to start other new businesses. Private Equity and the BSE main board can also be other relevant options suitable to certain businesses to raise funding after they show signs of success. There are no stringent requirements of getting listed on the BSE main board too except the size of the business. Click here for BSE main board listing criteria.
In the examples below, we can expect Risk and Expected Percentage Return of Example 1 < Risk and Expected Percentage Return of Example 2 < Risk and Expected Percentage Return of Example 3 < Risk and Expected Percentage Return of Example 4.
Example 1: A profitable company valued at 100X, with annual profits of 5X invests 2X to start 2 new ventures. Starting a new business is risky compared to investing in current business. Since only 2% of company’s value is used to initiate a new business, there is not much risk for shareholders.
Example 2: A mature profitable company valued at 75X is planning to raise 25X for its core business. It can raise an extra 5X at post funding valuation of 105X (75+25+5) and invests the extra 5X in 5 new entrepreneurial ventures as subsidiaries of parent company. (5X is the investment required to start 5 different ventures. The parent company enters at face value and owns 100% of the subsidiary at outset.). Even though there is more dilution, value of original shareholder stake remains same in both cases at 60X. This enables each of the 5 ventures to raise equity and debt funding of their own after they initial signs of success. With relaxed rules of BSE SME, even the smallest profitable businesses worth a few lakhs can raise capital and get listed (click here to see rules). Also, innovative businesses categorized as Startups can get listed without being profitable provided they have 1 crore of pre-issued share capital. The return on investment for investors can be better compared to entire 30X invested in the original business especially if the new businesses have a good business plan and a good team. There is slightly higher risk (approximately 5% of value of original business is invested in new areas) in this and investors can expect correspondingly higher returns than option 1 for taking higher risk.
Example 3: A fairly new company valued at 7X is raising equity funding. It can raise 3X at post funding valuation of 10X to invest in its core business. However, it can raise another 5X at post funding valuation of 15X and invest 5X in same 5 entrepreneurial ventures as described in above example as subsidiaries. (Even though there is more dilution, original value of shareholder stake and share price remains same in both cases). Here 50% of the original company’s value is invested in new businesses and hence shareholders are taking higher risk and can expect higher percentage returns than option 2.
Example 4: An investor invests 5X and starts 5 different ventures. Here, 100% is invested in new ventures. There is high risk involved and investors can expect correspondingly higher returns.
Our offerings of supplying readymade, detailed business plans and teams and following practice of using aggressive strategies like that mentioned in example 3 above can solve acceleration issues most small and large businesses face and help them maintain high growth rates. (For small businesses, we also help streamline existing operations and set them on path to become more professional, help them raise capital and get listed on BSE SME with new rules that allow any small business to get listed. Simultaneously we help them accelerate and diversify with new initiatives by supplying them with a variety of good business plans and good teams.)