28 4 / 2010
Value-Based Financial Strategies and Wealth Preservation
It’s not a question of enough, pal. It’s a zero sum game, somebody wins, somebody loses. Money itself isn’t lost or made, it’s simply transferred from one perception to another. ~ Gordon Gecko
In new media start-ups, companies can be worth millions and not be profitable. Valuations can be based 10x revenue formulas, user acquisition costs, ip patents and other stuff. So finding strategies to create economic profit and value are very important. I’ve never been a strong finance guy, but I found a great book awhile back that really helped me out; Strategic Corporate Finance - Applications in Valuation & Capital Structure by Justin Pettit. It says in creating value for the business, actions must employ at least one of four following means.
Fix
Improve returns through higher prices or margins, more volume or lower costs.
Some ‘Fix’ actions may include employing ‘virtual’ vertical or horizontal integrations. Or pooling industry resources. A lot of these can be executed through strategic partnership (for us might involve sharing servers, sharing sales channel).
Sell
Rationalize, liquidate or curtail investments in operations that cannot generate returns greater than the cost of capital. If a certain product can’t make you money, outsource it or partner up with somebody who can and share the additional revenue you weren’t seeing anyways.
Grow
Profitable growth through investing capital; where profits cover the costs. Looking at different M&A scenarios, joint ventures, licensing-in (and out), shared service structures.
Optimize Cost of Capital
Reducing the cost of capital . This is probably one of the most challenging aspects in doing business in a emerging market like Vietnam. The financial instruments (loans, credit, etc.) is just not as available as it is in 1st world countries. Then you have big currency value slides and high inflation makes optimizing cost of capital even more important.
The most valuable commodity I know of is information - Gordon Gecko
Asset Protection and Wealth Preservation
One of the biggest concerns for expats working and starting new businesses in emerging markets is how can they protect what they so hardly built. And how are they doing it? You can look at how much Foreign Direct Investments are put in country. US, South Korea are bigger investors in Vietnam. So is British Virgin Islands as they are always a perennial top 5er. A tiny island where most of it’s citizens live off tourism… and financial services. Where tax shelters, captive insurance and different types of trusts that help mitigate risks and liabilities for corporations. As somebody who still has to bootstrap… I probably don’t have to worry about those problems (probably a good problem to have) for awhile… but if it comes, knowledge in those things will come in handy.
Indemnification Agreement
If you’re in a space where lawsuits can be common; understanding how to structure a Indemnification Agreement is really good to know. Indemnification Agreements are used to secure you from legal responsibilities and can be used to shift liabilities to other parties. This is something your lawyer should handle for you, but I always believed in the C.Y.A. (cover your ass) principles. Here’s a great checklist .pdf on what to consider and make sure your lawyer didn’t leave anything out.
