The Pit - IMI Trust

With the ASX 200 and the Dow Jones Index consistently achieving new highs, investors have now started to seek investments with higher risk and higher growth potential. Many sophisticated investors realise that this occurs before companies hit a stock exchange.

Sophisticated Investors, Retail Investors and Professional Investors are now seeking to invest in the companies of tomorrow. By investing in start-ups or early stage businesses they can reap large rewards if the companies lists or is bought out.  On the flipside, there is every chance the company could fail.

Why would they do this, when everyone knows the risk associated with companies in their infancy? Risk vs Reward is the simple answer. 

Investors are now looking to allocate risk capital to these companies as part of their portfolio.  When looking at asset allocation in a traditional portfolio, you tend to see cash, property, conservative investments, growth investments and aggressive investments.  Typically, early stage investment is seen as aggressive but in reality it sits in its own band even higher.

The rewards are great but the chances of losing money are just as high.  Which is why only risk capital, or in layman’s terms, money you can afford to lose, should ever be placed in these investments.

Even only as far back as 3 or 4 years ago, this kind of investment was only available to the wealthy who acts as business angels or venture capitalists.  Today, companies such as the Australian Small Scale Offerings Board (with whom IMI Trust is a member of) is making it easier for investors to gain access to these type of opportunities.

Early stage investment is an exciting prospect but carries heavy risks.  Investors should carry out their due diligence, ask questions, find out as much as they can about the Company, its Management Team, the Market, the Competitors and the Marketing Strategy for success.  By analysing these aspects, an investor can see if the Company is doing its best to be successful.

And by success, this can be defined in a number of ways.  As an early stage investor, a good result is a company takeover or a public listing.  Today’s penny dreadful may be tomorrow’s dollar dazzler.

Companies are looking for early stage investment but do they deserve the capital from investors?  Many don’t but some do.  To learn more, about emerging growth companies looking for early stage and expansion capital, click here.  Or if you have any stories to tell about early stage investment, please tell us here. 

Imagine if you woke up stupid every day, with a hunger to learn, grow and evolve! That is the difference between the minds of innovators and routine.  Actually, it would probably be immensely frustrating that you have to start from scratch every day but in essence, innovators are those who wake up looking to pioneer.

Innovation is about looking at problems or gaps with new eyes.

When News Corp saw computerisation take hold they revolutionised the newspaper industry by streamlining and templating the whole process.

When Apple and Steve Jobs were being a thorn in the side of PC manufacturers Apple were busy conceiving how the music landscape would be changed forever.

It is interesting to look at the increase in Apples share price when Jobs is there… and when he is not.

1986 to 1998 Minus Steve Jobs - 120%

1998 til today with Steve Jobs - 1240%

Anyone else notice the difference innovation can make? What inspires you?

Notice how Cisco Systems has been trying to protect its trademark of iPhone from usage by Apple?

Notice how Apple Computers and the Beatles record company Apple have been in a legal feud for decades because of usage of the word Apple?

Notice how Microsoft’s Vista operating system has been launched to huge fanfare, meanwhile failing search engine, Alta Vista has not put up a fight?

Will Alta Vista’s usage increase during this period of Microsoft marketing?  They have a lot of ground to catch up on Google but any ground is good ground.

Unless you have been hiding with the weapons of mass destruction this week, you would have noticed that Microsoft have released Windows Vista.

You have to love the hard sell. Not many corporates really do it to consumers anymore. Not Apple, not Google, not the oil companies, not the car manufacturers. They are all into the brand.  Microsoft have allocated US$500million to marketing their new operating system and it shows.  Come back Crazy Frog all is forgiven.

Actually, Microsoft, well done for bringing back blanket coverage in marketing and sticking it in my face everywhere I look. It is a good reminder as to why you are a $300 billion company.

The truth is the only companies persistantly doing the hard sell is the credit card companies and the banks. Can’t understand why they keep on announcing record profits.  Probably because if you put a product in front of a consumer that services a need then they consume it…

When I checked out the Microsoft site to read the Vista marketing, i was stunned to see 100 reasons as to why Vista is so great. If you were absolutely insane… that is perfect for you to discover all of Vista’s benefits. if you are a bit more human, they had the highlighted benefits. From a marketing perpective, this warmed my heart.

The truth of the matter is I am going to Harvey Norman, or similar electrical retailer, and ask for a PC that is loaded with XP.  I know for a fact they will be fire-sale-ing that stock so I can get one or seven really cheap.  That is only one reason but better than the 100 reasons Bill gave me for getting Vista. 

Experts have come out of the their holes to comment on Vista.  Us included. The reality is in 2 to 3 years time, we all know we are going to be using it. This should impact their share price of (MSFT) Microsoft significantly. Will its recent bull run continue until then?  Maybe.

PS. Bill, I dont care that you have copied Apple, nor do I care that they will release something even more impressive with Leopard. Which they won’t because I’m over operating systems named after big cats.  Just please be taking notes when they do. Look forward to my Wow beginning Now!

Henry Paulson, former CEO of investment banking giant Goldman Sachs and now US Treasury Secretary is the man that the US financial markets are pinning their hopes on to stimulate the market for US exports to China.  The US is in a massive hole to China in its balance of payments.  Consider…

• Most junk found in street markets is ’Made in China’. 
• Most middle-order and high-end, manufactured items that are commonly known as ‘US Brands’ are Made in China
• In the US market alone, Chinese investors have around $1trillion in US Currency

The US is not happy with this and want to redress this imbalance.   They believe in ‘Hank’, as he is known, that Ben Bernanke, Chairman of the US Federal Reserve has deployed a dedicated to team to facilitate this ‘mission’.  If Hank can’t do it, no-one can. 

Henry Paulson is known for his ties in China. His relationship with the Government and Corporate Enterprise, is seen as the fundamental reason Goldman Sachs has strong credibility in China. But there is more to it than that.  John Thornton, his second in command while at GS, was the first western business leader to take up a full-time teaching role in China.  Tsinghua University is China’s leading business university and is producing 1200 MBA’s per year.  These link led GS to be Lead Manager in the ICBC IPO and numerous other domestic listings. 

Goldman Sachs, is one of the only US companies freely doing deals in China. Obviously, George Bush noticed the respect he received with his Chinese dealings, all this without the rigmarole of actually having to go to war. 

The US want him to make the US position in China stronger.  The first step is to encourage China to float their currency, the Chinese Yuan, to enable the massive trade deficit to close.  China’s approach is ”We will… eventually!”.  Without Hank on the case, it would have been a definite ‘No’. 

Hank Paulson is a faciliator of business.  He realised long ago you can’t just ‘take’.  There has to be a balance.  In order to receive you have to give. Funnily enough, as the US consumer ‘gave’ for Christmas, the Chinese manufacturers ‘received’.

There are some huge tech success stories around the world.  Many that started with a few people with vision and now household names.

Steve Jobs with Apple Computer, Larry Ellison with Oracle, Sandy Lerner and Len Bozack were the brains behind Cisco Systems and Jerry Yang & David Filo made Yahoo! stratospheric.  More recently, Larry Page and Sergey Brin made Google synonymous with search, Chad Hurley and Steve Chen did the same with YouTube and Online Video.

All these companies have been helped along by the capital corporation with the midas touch, Sequoia Capital.  Without Sequoia Capital it is likely that Google and YouTube may have fallen to oblivion. They needed help to get off the ground.  Genius only gets you so far.  Money takes you to the next level. Not just money, but business acumen and experience in finding ‘the next big thing’.

Sequoia Capital have sunk money into many companies that have become hugely successful.  After searching on Google, you discover that 10% of the value of the NASDAQ is made up of companies which have had some sort of business involvement with Sequoia Capital.

They promote themselves as the entrepreneurs behind the entrepreneurs.

The world of capital raising can be highly lucrative and very risky. And many capital raising companies raise capital for the sake of taking a cut.  Sequoia Capital have backed their deep pockets up with great results.  They have ensured that entrepreneurs are able to grow their dreams.

How many Google’s have we not seen?  How many other tech nerds with a passion have missed out on a multi-billion fortune?  Without the seed funding, and without the business guidance, where are these guys today with Page and Brin and Hurley and Chen?

Behind every great success story there is a depth that is rarely explained or mentioned.  We see the end result, nothing else. Companies like Sequoia Capital make it happen.

The reason they are successful is because they are passionate and have a believe in the value of ‘The Idea’ and ‘The Culture’ underpinning the idea.  In business, the support is what you need to succeed.  That and billions of dollars.

Approximately 4 years ago I was looking at Corus Steel shares on the London Stock Exchange.  They were at the very low price point of 9p per share.  Earlier in the year they had been down to 5.5p.  Analysts believed then the company was going to go bust because there was little demand for steel in the market.

As Corus was the new identity of the formerly government-owned British Steel I believed that it was unlikely to go bust as the government would step in at some point if the situation got really bad.

I then moved house, moved country, started up in a different industry, spent some time with my wife and forgot all about the stock.  I was planning on a Buy and Hold strategy especially for stocks who have been affected by bad news.

I was browsing the newspaper today and lo-and-behold, Corus caught my eye.  As at close of trading 10 January 2007 it sat at 536p.  A 59.5x appreciation or a 5950% rise in that time.  My ‘dipping-the-toes’ investment of approximately $12,000 would have been worth around $800,000.

March 21 2003 - Corus Group - 9p. 
January 10 2007 - Corus Group - 536p.

I really should have bought shouldn’t I?