The Pit - IMI Trust

…actually, no.

1318 days and counting… there must have been a lot of bugs …

Capital Raising, Venture Capital, Business Angels and Private Equity have become flavour of the month in Australia.

The reality is, for businesses looking to raise capital, it can become a nightmare for the unsuspecting owner. You always read about the successful ventures but rarely do you hear of about the challenges associated with raising capital for your business. For other business, who utilise business factoring services, it is their opportunity to utilise an alternative solution. 

When it comes to capital raising, most business owners believe they have 3 places to go: Banks, Angels and Venture Capitalists. Few people realise there is a 4th way to go if you want to raise between $250,000 and $5m (without a prospectus).

Below is a snapshot of some of the issues related to each.

Venture Capitalists
There is a reason they are called Vulture Capitalists. They generally look for small to mid size companies and traditionally Venture Capitalists will value your company on its current value (prior to growth following funding), and then look to take a stake based on that value. Some Venture Capitalists, will also look to play a role in the management of the business. It is a coin toss whether this becomes an asset or a liability.

This path is fraught with problems especially if you are looking to retain control of your business. With one business we worked with after funds were raised through a Venture Capitalist, personal attitudes and business differences surfaced and the owner was forced to leave the very organisation they started.

Business Angels
Business Angels could be ideal for your business if the Angel brings a wealth of experience, contact or resources to the table but again the problems you face with Venture Capitalist’s, you are likely to face with Business Angels. You lose control and possibly a lot more.

Banks -
Although the most common option for people, you should only really go to a bank if you a desperate. This is why…

1. Do you enjoy putting your own personal assets at risk?
2. Do you enjoy paying interest for the life of the loan?

Of course not. When raising capital the questions you want to be asking are…

1. What percentage of the company am I willing to offer? How are the shares going to be split up between the current owners and stakeholders.
2. Is your business structure investor friendly, as well as business owner friendly
3. If you are utilising the banks, are you willing to put your personal assets on the line
4. Do you want to retain control of your business, or are you happy for a 3rd party to have an influence?
5. Have you put in place a strong management team?
6. How unique is your offering, and what is your realistic potential for growth?

All of these questions are important, and you should definitely know the answers before you approach any organisation to assist you in funding the growth of your business.

These are the questions you need to answer when looking at the 4th way for you to Raise Capital for your business

This path offers some unique benefits…

1. The capital raised is interest free
2. Doesn’t require you to put your home up as security
3. Allows you to maintain the majority shareholding in your business… allowing you to retain control of the future direction of your company.
4. Allows you to crystalise the value of your business, which is recognised by the markets and considered as an asset on your balance sheet
5. Provides an investor-friendly environment allowing your investors the opportunity to sell their holding if they desire
6. Ensures that you are compliant with ASIC’s rules and regulations. Most people dont realise the legal mine field and potential issues if you try and do this yourself… and get it wrong. Let me provide some insight… a $20,000 fine, 5 years jail, the company wound up… and then it starts to get ugly from there.

Our focus is to help entrepreneurs realise the aspirations they have for their business!
What this means for you is that IMI Trust is able to facilitate debt and equity funding for your business growth, expansion and acquisitions.

To explore the commercial potential of raising capital for your business click here.

Contracts For Difference, or CFDs as they are known, have had a major impact in the Australian trading and investment landscape.  Just 3 years ago they were virtually unheard of and today they are the most heavily traded derivative in Australia.

Why the phenomonal rise in CFD trading? Why are education providers ready to give their left elbow to teach people how do trade CFDs

Firstly, we have jumped the gun.  Apologies.  Most of you out there probably are keen on managed funds or just trade shares (that’s uncool nowadays by the way) so you may not know what CFDs are.

A contract for difference is a contract between two parties, buyer and seller, stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time. Thank you Wikipedia for that accurate CFD definition. 

It still may have not made any sense to you but here are some reasons why CFD trading in Australia has become popular…

1. CFDs are a leveraged trading instrument. As an example, for a $10,000 trade, the margin required is usually $1000 (10%). Some companies offer margin rates as low as 3% on Stock CFDs
2. CFD pricing movements are tied to the share price. This means if the share price is worth $10 and it increase to $10.10 (a 1% movement), you actually experienced a 10% growth on your margin invested. A CFD is not like an option, where the price of the option is NOT directly tied to the movements of the stock price. Obviously this is also reflected on the downside of a CFD movement.  (Special Note To Optimistic Traders:  CFDs Do Have A Downside.  Yes, They Really Do)
3. You also receive the dividends on the total investment, not just the portion of the holding you own. 
4. CFDs offer traders the opportunity to place Long CFD trades or Short CFD trades. So you can profit from rising or falling share prices. (Special Note To Optimistic Traders:  You Still Have To Position Yourself Correctly And The Market Must Respond Accordingly For You To Profit.  Making A Profit In A Falling Market Is Not A Right)
5. Trade Indices CFDs are available.  This means you can take advantage of the movements and stability of indices such as the ASX 200, Dow Jones Index, Nasdaq and S&P 500.
6. Margin is comparatively priced. The interest rate on the capital borrowed (the other 90% of the stock you don’t own) is relatively inexpensive and comparable to real estate loans.
7. Trading CFDs internationally has been made a lot easier with online trading platforms offering traders and investors international Stock CFDs. Some platforms make the process complex. Other online trading platforms like the SMC Trader, make international CFD trading as simple as trading Australian Stock CFDs.  We know.  We designed the support system that ensures you can trade CFDs in under a minute.
8. Americans can’t trade them. Sorry Americans!
9. Ability to hedge current stock holdings. Some CFD Traders, have used CFDs to hedge their stock holding in times of uncertainty, or when Alan Greenspan is talking (Sorry? What’s that Mr Greenspan? You did what?)

I hope this provides you with some more information about CFDs. Recent estimates of online trading in the UK show that 50% of all trading are CFD trades. With CFDs representing such a small segment of the Australian market, industry experts forecast more volume traded on CFDs in the upcoming months.  As the returns offered can be so attractive, CFDs seem like they are here to stay but traders should tread carefully.  Downsides can be painful is your CFD isn’t adequately hedged.  Did you hear us Optimistic Traders?!!?

FON.  If you haven’t heard of them yet then you soon will.  They are backed by some of the most powerful organisations on the internet, Skype and Google as well as the venture capital companies behind these giants, Sequoia Capital and Index Ventures are all investor partners in FON.  So why has FON done so well to capture the attention of these giants?

FON is the world’s largest WiFi community. Started in Spain by Martin Varsavsky, FON is built on the idea of creating a community of people who get more out of their internet connection through sharing. Every router purchased by a user enables that user to become a mini-ISP.  The beauty is they can choose to charge for the service or give it away for free if they so wish. Any amount they charge is split down the middle with FON.

Clearly, this is the best home-based business idea in a long time.  Have an internet connection and resell the bandwidth to people in your local area.  Be your own ISP and profit.  Or be chartiable and give it away. 

We love the idea here at IMI Trust but we are not alone.  There are over 300,000 ‘hotspots’, or router portals worldwide and FON want to grow that to 1m by 2010.

When FON finally hits Australia, it will cause a massive shake up in a stagnant and relatively service-free industry.  Large Internet Service Providers are getting fat on the easy profits made by broadband users.  Wireless service is poor in Australia and worse still, fees for usage are ridiculous compared our international counterparts.

So FON sound ambitious.  You are not wrong.  To kickstart their success in the US, they have have just offered 10,000 people who live near Starbucks, or any cafe with any existing WiFi hotspot, the opportunity to receive their FON WiFi router for free. A bold move considering Starbucks has its own service it provides, but when you have Google, Skype and Sequoia Capital backing you, bold moves come with the territory.  Since there are over 13,000 Starbucks stores worldwide, this initiative is only the beginning of a large scale, long term plan.

Forbes Magazine have listed them as one of THE companies to watch this year. Not bad for a company which only had its first birthday this February.

The question on Australian lips is surely when is FON coming to Australia? We need your service sooner rather than later. 

Also, on a more self-interested note, when is the IPO? And where can we sign up?

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!

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.

“Microsoft is the only company in the world that removes features to create a great new product”

- Anon

Whether it occurred by design or coincidence it is hard to say but the Commonwealth Bank has a smart, new advertising campaign.  An advertising campaign that other companies have utilised in the past - Making good news out of old bad news.

Their current campaign highlights the fact that their staff ‘Open Doors’ and they are recruiting new staff all the time to help you.  This is, of course, great news for you as a consumer because you are probably fed-up with inefficient systems and long delays to carry out even the most rudimentary of tasks like paying in a foreign currency cheque.

However, what the advertisement doesn’t highlight is that the Commonweath Bank has presided over 20,000 or so job losses over the previous decade.  This reduction in staff numbers has served a purpose.  To create this ‘new’ era of job creation.  It works very well in the public eye as the average punter has no idea or want to find out about a company’s track record.

This strategy has worked with other banks around the world with Natwest and Lloyds Bank in the UK closing huge numbers of branches over the 90’s, that inevitably turned into glossy wine bars and eateries, and then, some time after, opened new branches with large advertising campaigns promoting the fact. 

Having worked in large financial institutions for the early part of my career I recognise the banking ethos of ‘Making Hay While The Sun Shines’ and ‘Cutting The Fat When Necessary’.  In periods of recession or slow growth, banks readily chop uneccessary, unprofitable arms and when they are profitable, the money they make they spend recklessly with huge bonuses, frivolous spending and increased staff numbers.

So, what is the end result for the consumer?  Nothing really.  As long as the end experience is the same they don’t care.  If it isn’t they notice and they may be motivated to switch to a different provider.

As a business owner, you should look to bad news in the industry or within your company to create opportunity and good news.  The banks have demonstrated how this is done and you can too.  It doesn’t have to be a monumental story, just something that is a point of difference for you and how it can be exploited.   And yes, the use of the word ‘exploit’ is deliberate…

Marriott International Hotels has annouced that its website Marriott.com will shatter its revenue record in 2006 by generating nearly $4 billion in sales.

The have a world-class brand and world-class facilities but thousands of other companies don’t have the online penetration they do.  How did they achieve these online sales?

Simply put, they have made the website compelling for the user to make a purchase.  Marriott have conditioned the user to make their purchasing choices through the website.  They have done this by having these features:

• Easy browsing of the website so users can pick dates, locations, iteneraries very easily
• Good photography of the locations so people can visualise each place
• Favourable rates from offline purchases
• A variety of different rates with different inclusions so there is no need to call an operator for ‘non-vanilla’ requests
• Immediate reservation / ticketing so there is immediate purchase satisfaction

All this and there is a great email marketing campaign where discounts are offered to hotels within your specified region and there is continual cross-selling and upselling of products that would interest you.  City and Destination Guides provide ample information for the location of travel and there are options to book events at your destination too.

Easy Decisions To Make

The consumer is armed with all they need to make the right buying decision.  There is no reason to phone to make an enquiry or go to a travel agent.  All the necessary information is at a click.  So people are comfortable with this system. 

The hotel booking service by Marriott has conditioned the user to believing their website is their main, and most useful, shopfront.  This is where the travel industry has go it so right with online airline ticketing is also massively popular.

Don’t be fooled into thinking that because you have a finance business or a florist or a funeral director that you can’t condition your users to think the same way.  Give them options and information to make their buying decision and they will. 

This is why online stock trading has become so popular.  Many investors conduct their own research and are comfortable making the trading decisions themselves.  They can do this because the end-to-end process is all covered online.  Technical tools, research, immediate pricing, comparison pricing and so on, is all immediately available to the user so they can make a buying decision. 

With the internet and your website the principles are that simple.

For as long as financial service providers have been operating there has been debate on fees.  The focus in the trade press has been on keeping fees ultra-low for the ‘public interest’.  To highlight how interested the public are Newspoll conducted a survey recently identifying that 60% of investors had no idea how much commission they pay. 

The current market sentiment is that fees they pay have to be low.  Fund managers, financial advisors and superannuation managers are striving to keep their fees low because ‘high’ fees are perceived to not represent value.  However, this philosophy is misguided.

Low fees mean that service, diligence, research, endeavour, expertise, good management and a host of other desirable qualities have to be sacrificed. 

The supporters of low fees, time and again, use the arguement that high fees erode returns massively in the future because of compouding and low fees give you, the investor, the service user, the client, more money in your pocket. 

This though is making the incorrect assumption that both services, the high fee service and the low fee service are delivering the exact same product.  They are not.

I Couldn’t Believe I Was Able To Buy A Convertible For Under $5000

We specialise in web and marketing for the financial services industry.  So here are a few questions about web costing. 

• Would you expect the same value or performance from a website that cost $1,000 to a website that cost $100,000? 
• Or a website that cost $100,000 to a website that cost $1,000,000? 
• Or a website that cost $1,000,000 to a website that cost $10,000,000? 

In all three cases the answer would be a clear and resounding ‘No’.  If you pay more money for more features, more scope and more functionality your results end up being a lot different.  In terms of marketing, here are a couple of other questions:

• Would you use your marketing budget to make one television advert that appeared once?
• If you answered Yes, how would you then market to people who missed that advert?

Again, with marketing you have to spend time and money on strategy, management and research to get optimum results.

How can a financial service provider operate with such restrictions?  They can’t.  Not well enough to for you to be confident that you money is being managed well.  The square peg doesn’t fit in the round hole in this instance.

And if you are the discount chaser and you want low fees, are you disappointed when the value delivered is low and performance less than expected?  You should be but really you only have yourself to blame.