My CEO Life

I invest in around 12 different companies and at any point in time one of them seems to be raising money.  When a company raises money they are either in a position of running out of cash and need a new injection to survive, they are on a rapid growth path and need new cash to accelerate growth or in some instances they need capital to fund an acquisition (and thus accelerate growth).

Capital raising is always a fun process.  You need to get the balance between valuing the company as high as possible to avoid too much dilution while at the time providing the new investors with upside.  However the balance of power is often driven by your current cash position and just how desperate you are to raise money.

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Many of the companies I invest in have the stated goal (or internally hoped for goal) of floating – that is IPO’ing or listing on a stock exchange.  Now in theory this makes sense as it provides a liquidity event for all shareholders and a market for the company’s shares.  However, having been the CEO, Chairman and a Board Member of a number of small listed companies, the reality of being listed isn’t always as good as hoped for.

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As mentioned yesterday, i had an interesting discussion with a property portal from Russia that was looking to raise money.  As part of the discussion they sent through a P&L with their projections for the next 12 months.  This was all to help me understand how they expected the business to grow and what their capital requirements would likely be.  The problem with this was they were cutting it way to close and in my expectation, they would run out of capital in the middle of the year.

Therefore, the question that all investors ask is, do you have enough capital to either reach profitability or to deliver enough results that demonstrate great progress and will ensure more capital can be raised?

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On Friday I had the chance to talk to a group about their property portal in the Russian market.  They were looking to raise additional funding to drive growth and wanted to know if i would invest.  Naturally we spent chunk of time looking at the P&L projections for the business.

The first thing that jumped out was the enormous growth they were projecting.  Revenues going from 1.6m euro in year 1 to 58m euro in year 4.  Suffice to say i nearly feel off my seat, especially since their current revenues are ZERO!  The next step was to look at the drivers of revenue and to understand even if these numbers were possible.

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