Alguns jornais nacionais e internacionais de ontem (15 de Setembro) noticiaram o apoio dos países conhecidos como Bric (Brasil, China, Índia e Rússia) para um possível pacote de ajuda na crise europeia.
Tal assunto foi gerado pela iniciativa da China em oferecer "ajuda"e propor adquirir um volume expressivo de debêntures e outros ativos de países da zona do Euro, e já em negociações mais avançadas com a Itália.
É conhecida a predisposição da China em diversificar seus US3,2 trilhōes de reservas em moedas internacionais, reduzindo sua exposição ao dólar americano. Assim, tal aquisição pode se considerada ajuda, mas é também necessidade derivada de uma gestão apropriada de riscos.
Nossa presidente, Dilma Rousseff, se manifestou com discurso apropriado, informando que o Brasil sempre estará disposto a apoiar esforços internacionais nesse sentido, neste caso dependente da Europa apresentar uma estrutura viável para um pacote de resgate e, ainda, sem se comprometer com qualquer proposta envolvendo apenas os Brics.
Em escala 10 vezes menor, temos o mesmo problema da China na gestão de nossas reservas. E tal postura do Brasil demonstra seu peso crescente no cenário global. O Financial Times reconhece que "qualquer esforço do Brasil de coordenar uma resposta dos Brics à crise da dívida europeia marcaria um grande passo nos esforços do país para aumentar sua influência em questões mundiais".
Mas daí vem minha preocupação. O que vamos demandar? Vamos tornar público? Aumentar a influência e receber o quê em troca?
A China, através de seu primeiro ministro Wen Jiabao, não teve problema em tornar público o que espera. Apesar do interesse chinês na operação, como acima mencionado, deu um puxão de orelhas nos países endividados, dizendo que os "países devem cumprir suas responsabilidades e colocar suas próprias casas em ordem" - repetindo o já dito aos EUA - e fez uma ligação direta entre tal apoio e a antecipação do reconhecimento da China como "plena economia de mercado", o que favoreceria algumas empresas chinesas envolvidas em disputas comerciais.
E o que o Brasil vai pedir? A única demanda internacional recente do Brasil que temos notícia é o tal assento permanente no Conselho de Segurança da ONU - tema que faz mais sentido tratar em particular com os 5 países com direito a veto em tal conselho. Ultimamente, temos visto o Ministro Mantega esbravejar a respeito dos programas conhecidos por "Quantitative Easing" dos EUA e da chamada "guerra cambial", ambos assuntos mais de economia doméstica - políticas monetárias, fiscais e cambiais - dos países ao tentar estimular suas economias, do que na esfera de política internacional.
Vejamos o exemplo no caso da desapropriação dos ativos da Petrobrás na Bolívia, alguns anos atrás. O que o Brasil recebeu como compensação, além dos elogios do presidente Evo Morales ao "amigo" Lula? Nada que tenha sido divulgado aos contribuintes.
Seria exemplar tornar público o que Brasil espera como contra partida para ajudar a Europa ou qualquer país/ organização internacional. Para não haver especulações de que continuamos sendo República de Bananas e chamados de bons amigos, enquanto nossos ativos são usados em troca de doações para campanha de partidos políticos, com possível sobra para fundações de senadores e outros "favores particulares".
Além dos clamores populares contra a corrupção, os quais endosso com fervor, precisamos e temos uma oportunidade de aumentar a transparência na gestão dos ativos públicos, e evoluirmos como sociedade e como país digno de respeito.
Saturday, September 17, 2011
Monday, September 12, 2011
About Venture Capital Firms, Entrepreneurs and Investors (and their Differences on Variance)
Venture Capital
firms play an important role for entrepreneurs and in the overall economy,
offering sound equity financing for growth projects of new companies.
They contribute with management expertise, governance practices and knowledge about capital markets, thus helping to take the invested company to the next level.
Moreover, they make most of the profits when realizing returns from the successful investments and, as such, do pursue maximum return for their funds.
Perfect match among interests of VC firms, investors and entrepreneurs? Well, not quite. See for instance the quotes below:
"Our business can reach a good size, with steady growth and manageable risk, thus indicating a good return on investment. Why couldn't we attract VC firms? Am I missing something?"
"Shouldn't the VC firm, as our partner, have the same interests that we do? So why pushing for faster growth, if it increases our risk so much?
They can be better explained with one example. Let's suppose that we should select one of the following US$ 1 million investment alternatives.
In the first, chances are that in 2 out of 10 you would lose the whole $1 million. In 4/10 you could recover the invested amount with no profit or loss; and in another 4/10 you could get $2 million back, making $1 million in profit!
In the second alternative, in 8/10 times you would lose the whole $1 million. And in 2/10 you would get back $6 million.
Where would an entrepreneur - who could be investing most of his/her savings in the business - place the bet? And what would be the choice of an individual making an investment in a VC fund?
From a pure expected return perspective, both alternatives would average total cash back of $1.2 million, or 20% return. From the investor point of view, the difference would be mostly dependent of his/her aversion to risk.
Clearly, alternative one has a much lower risk (statistical "standard deviation" and "variance"). The above mentioned entrepreneur would probably select that option. I believe that even the average investor in a VC fund, as long as not in a "casino betting" type of strategy, would probably finance the first business.
In alternative one, their expected fees would be $40 thousand. Compare that to the $200 thousand in the second alternative. Five times larger! This explains why VCs seem to like so much internet traffic (and other high risk/high potential size) based businesses.
This is not a criticism to VC funds in particular. The conflict occurs with most asset managers that have a performance based compensation, who make investment decisions with third party (financial) assets.
Qualified investors (the market) should be able to negotiate their investment terms. They could demand adjustments to performance fee structure, establish practices to limit risk levels or require coinvestment practices, if they feel appropriate.
My objective is to alert Entrepreneurs, who should realize such different incentives, when negotiating with VCs and understand that the lack of VC interest could mean lower investment potential but also risk, not necessarily lower expected return.
Also, if possible, look for other financing alternatives to their business such as investors that would consider a longer term, dividend based return on their investments.
They contribute with management expertise, governance practices and knowledge about capital markets, thus helping to take the invested company to the next level.
Moreover, they make most of the profits when realizing returns from the successful investments and, as such, do pursue maximum return for their funds.
Perfect match among interests of VC firms, investors and entrepreneurs? Well, not quite. See for instance the quotes below:
"Our business can reach a good size, with steady growth and manageable risk, thus indicating a good return on investment. Why couldn't we attract VC firms? Am I missing something?"
"Shouldn't the VC firm, as our partner, have the same interests that we do? So why pushing for faster growth, if it increases our risk so much?
The answer to the
questions above lies in two components that can create conflicts
between VC firm and the entrepreneur (and often also with the investor in the
VC fund): (i) impact of risk in the VC performance fees and (ii) differences in
risk aversion.
They can be better explained with one example. Let's suppose that we should select one of the following US$ 1 million investment alternatives.
In the first, chances are that in 2 out of 10 you would lose the whole $1 million. In 4/10 you could recover the invested amount with no profit or loss; and in another 4/10 you could get $2 million back, making $1 million in profit!
In the second alternative, in 8/10 times you would lose the whole $1 million. And in 2/10 you would get back $6 million.
Where would an entrepreneur - who could be investing most of his/her savings in the business - place the bet? And what would be the choice of an individual making an investment in a VC fund?
From a pure expected return perspective, both alternatives would average total cash back of $1.2 million, or 20% return. From the investor point of view, the difference would be mostly dependent of his/her aversion to risk.
Clearly, alternative one has a much lower risk (statistical "standard deviation" and "variance"). The above mentioned entrepreneur would probably select that option. I believe that even the average investor in a VC fund, as long as not in a "casino betting" type of strategy, would probably finance the first business.
And how about VC
firms? Do they have similar incentives? Let's consider a firm and its partners who
make most of their profits and bonuses from success fees, for instance, 20% of
realized returns, if any is made.
In alternative one, their expected fees would be $40 thousand. Compare that to the $200 thousand in the second alternative. Five times larger! This explains why VCs seem to like so much internet traffic (and other high risk/high potential size) based businesses.
It is true that total fund diversification somewhat reduces portfolio risk. But with such compensation structure, it is to the firm's benefit to undertake riskier investments, even with the odds of losing the whole
investment. Mostly if there is no VC partners'
personal money being coinvested in the fund.
This is not a criticism to VC funds in particular. The conflict occurs with most asset managers that have a performance based compensation, who make investment decisions with third party (financial) assets.
Qualified investors (the market) should be able to negotiate their investment terms. They could demand adjustments to performance fee structure, establish practices to limit risk levels or require coinvestment practices, if they feel appropriate.
My objective is to alert Entrepreneurs, who should realize such different incentives, when negotiating with VCs and understand that the lack of VC interest could mean lower investment potential but also risk, not necessarily lower expected return.
Also, if possible, look for other financing alternatives to their business such as investors that would consider a longer term, dividend based return on their investments.
Saturday, September 3, 2011
Reasons For Startup Failures
Much has been written about the subject. I particularly like John Osher’s “Top 17 Startup Mistakes You Can’t Afford to Make “(Entrepreneur.com http://www.entrepreneur.com/article/66454), as it has similarities and is, in some ways, an expansion of my view.
My experience shows that the most frequent reasons for startup failures can be summarized in three groups: (1) the market is not really there; (2) you end up needing more money than anticipated; and (3) you not only make, but persist on managerial mistakes
The first reason relates to believing that there is a market ready to buy your product or service and finding out that people do not perceive the value that you expected. Or a variant from the same theme, the market not being ready to take advantage of the value being offered. For instance, I have faced a situation where, although our product could have a relevant impact in our customers’ sales, they were not prepared to implement the management processes necessary to achieve such benefit.
There is no magic formula to prevent this, other than extensive research and in advance planning. Talking to potential customers - if possible testing the market. Controlling the enthusiasm about your idea and really hearing what they have to say, mainly their objections.
The second and most usual reason for startup failure is underestimating the cash needed in the company. Sales projections are almost always too optimistic (especially when you have to attract outside investors). Actually, I have never seen a startup original sales projection be met! Demand usually takes time to build and a new trend is different from just a fad!
Then, costs and expenses are often underestimated. Lower volumes mean higher indirect costs per unit. Organization is hired based on projections that do not realize and fixed costs built up. Expenses and taxes are sure things in business, but the same can not be said about customers or sales! And sadly, it is also usual to see entrepreneurs implementing a “rich company” mentality in startups and “eating – instead of raising – the golden eggs' chicken”, meaning their company.
The best advice for that is: plan carefully and conservatively, build an austere culture and, most importantly, have a contingency plan. Pursue breakeven like water or oxygen. Too much focus on sales and too little on profit is a serious risk.
The third reason is the owner him/herself messing up. Making mistakes is human, persisting will destroy the business. Insisting on a bad partnership; on unrealistic sales projections; on the wrong market strategy or approach; on a weak management group (maybe including yourself); and so forth.
That does not mean that you should give up early. Perseverance is key to a successful startup. It means that you should build trust based partnerships, with people that have a common set of values; that you should have a good and reliable set of advisors, with courage to tell you what you may not want to hear, and that you should listen to them.
Sure there are other reasons for failure and the advices above are easier to say than to execute. Experiences vary and chances are we all will mess up. But, hopefully we end up learning. What do you think?
My experience shows that the most frequent reasons for startup failures can be summarized in three groups: (1) the market is not really there; (2) you end up needing more money than anticipated; and (3) you not only make, but persist on managerial mistakes
The first reason relates to believing that there is a market ready to buy your product or service and finding out that people do not perceive the value that you expected. Or a variant from the same theme, the market not being ready to take advantage of the value being offered. For instance, I have faced a situation where, although our product could have a relevant impact in our customers’ sales, they were not prepared to implement the management processes necessary to achieve such benefit.
There is no magic formula to prevent this, other than extensive research and in advance planning. Talking to potential customers - if possible testing the market. Controlling the enthusiasm about your idea and really hearing what they have to say, mainly their objections.
The second and most usual reason for startup failure is underestimating the cash needed in the company. Sales projections are almost always too optimistic (especially when you have to attract outside investors). Actually, I have never seen a startup original sales projection be met! Demand usually takes time to build and a new trend is different from just a fad!
Then, costs and expenses are often underestimated. Lower volumes mean higher indirect costs per unit. Organization is hired based on projections that do not realize and fixed costs built up. Expenses and taxes are sure things in business, but the same can not be said about customers or sales! And sadly, it is also usual to see entrepreneurs implementing a “rich company” mentality in startups and “eating – instead of raising – the golden eggs' chicken”, meaning their company.
The best advice for that is: plan carefully and conservatively, build an austere culture and, most importantly, have a contingency plan. Pursue breakeven like water or oxygen. Too much focus on sales and too little on profit is a serious risk.
The third reason is the owner him/herself messing up. Making mistakes is human, persisting will destroy the business. Insisting on a bad partnership; on unrealistic sales projections; on the wrong market strategy or approach; on a weak management group (maybe including yourself); and so forth.
That does not mean that you should give up early. Perseverance is key to a successful startup. It means that you should build trust based partnerships, with people that have a common set of values; that you should have a good and reliable set of advisors, with courage to tell you what you may not want to hear, and that you should listen to them.
Sure there are other reasons for failure and the advices above are easier to say than to execute. Experiences vary and chances are we all will mess up. But, hopefully we end up learning. What do you think?
Subscribe to:
Posts (Atom)