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Investors in the private sector

How they make Decisions.

Alexander Gilles
Topic for Today

Private
Equity
Venture
Seed
Capital
Capital

They capture the


Angel growth stage.
Investors 2
Venture Capital in the Philippines
FUNDS: SCOUTS:
NARRA venture capital • Phil Commercial Capital
Hambrecht & Quist Fund: Inc (PCCI) Makati. Lpz
they put money in the • Investment Capital
venture. Corp of the Phils (ICCP).
AO Capital: ipvg. Labs. • Argosy Partners
NURSERY: .. They screen projects,
• Ayala Technology then call a meeting to
Business Incubator raise the cash.
ALEXANDERGILLES@GMAIL.COM
Angel Investors in the Philippines
FAMILY CORPORATIONS • Pancakes and Sizzling
• Clothing shops that Steak.
start other shops. • Haciendas. Agro-
• Tuna, Sardines, Corned industrial corp.
Beef.
* Ventures of P200m to * FIL Capital is the biggest
P800m, or more .. funder in history.

ALEXANDERGILLES@GMAIL.COM
International Private Equity
• PhilamLife Private • TSV corp: mining
Equity Funders inc. • Mideast funds.
• SPNK (until 2009). • Washington Technology
• DWSG– active in Phils. Partners Inc. ArB.
• IBSJP– active through • Enviro-ventures Inc.
intermediaries. Seo. MaytF.
• Ivory Capital HK–
interested in Phils. • Investment Banker
checks if you’re ready.
ALEXANDERGILLES@GMAIL.COM
Care for
Nature
We’re
thinking:

Money Benefit
from to
Funders? Society
Care for
Nature?
They’re
thinking:

Benefit
Risk &
to
Return
Society?
Valerie Santos

• Filipina-American
Once served in a Philippine rural
area as a social worker, one
summer.
• Harvard MBA. Harvard JFK Masters in Public Policy

• Appointed Deputy Mayor of


Washington DC.
Manages a yearly budget of US$12bn.
Project or Business: needs money

Long-term Medium Short

• 20 year • Five-year • One-year


project • Good of • Good of
• Good of the the
country province village

ALEXANDERGILLES@GMAIL.COM
Important to know
• Is it a Bankable project
• Project might be bankable, but is investment
money available.
• Investment money may be available, but is the
investor willing to invest.
• Investor may be willing to invest, but are you
able to communicate.

First, we tap into the investor’s thoughts.


Thoughts

Investors classify risky assets


Best
HIGH return,
at HIGH risk.
Returns, %

Low return, at
Low risk

Worst
Level of RISK, %
Thoughts

Investors embrace risky assets


Completely
NEW Project,
with some
Small Business Track Record
HIGH return, at
Returns, %

Stock HIGH risk


Market
Fixed
Income
Low Completely
Cash return, at NEW Project,
Low risk no Track Record

Level of RISK, %
Thoughts

Motivation: beat Inflation


PLDT stock: 18% a
year, for last 18 years

Jollibee: 14% a year,


Returns, %

for the last 14 years

BPI: 11% a year, for the


last 11 years

Inflation: 6%

Bank Deposits: 3%

Level of RISK, %
Thoughts

What returns are investors after?


Average 39% / year

120%

60%
40%
20%

- 30%
With some acceptable Risk

ALEXANDERGILLES@GMAIL.COM
Thoughts

Life cycle of a company

Handover
to next
generation
Aggressive
Daring
Expansion
Investment

Tremendous
Struggle to increase in VALUE
Survive
16
Thoughts

Investors target specific phases

Private
Equity
Venture
Seed
Capital
capital

Angel They specialize.


Investors 17
Thoughts

If you are a progressive city,

…then, you can Additional


attract rounds of
investment Private-equity
funding..
money.

Find a Creating
Path
value
18
Thoughts

After size & stability are achieved


PSALM
recently BANKS
borrowed
one billion
dollars from
the capital STOCK
markets. MARKET

… more private- Banks lend to


equity money AAA rated
companies
19
Important to know
• Is it a Bankable project
• Project might be bankable, but is investment
money available.
• Investment money may be available, but is the
investor willing to invest.
• Investor may be willing to invest, but are you
able to communicate.

ALEXANDERGILLES@GMAIL.COM
“Bankable”
70
50
Sales

7 Profits

Earnings
5 can be
forecast

2010 2011
Raw Add value =
material: Sell at 50
8 pesos Cook it.

1000 Bangus x price per x number of


in fish pen fish fish pens
Show me the money
Ten hectares will need P1.5mn for seeds, fertilizers, labor.

Feasibility of Joint Venture Farming Bell Pepper

Year 1
per season per annum
Operating Inputs Cost / Ha Cost / 10 Ha Cost / 10 Ha
Seeds 6,000 60,000 120,000
Fertilizers 10,700 107,000 214,000
Ag chem 9,800 98,000 196,000
Labor 10,150 101,500 203,000
Staff Wages 30,000 300,000 600,000
Fuel/Lube 2,600 26,000 52,000
Repairs 2,500 25,000 50,000
Miscellaneous 3,250 32,500 65,000
Total Operating Costs 75,000 750,000 1,500,000

* ERGO P150k PER HECTARE, seed capital


Here is the Money.
Expect to harvest P9million worth, for two plantings.

Production per 10 Ha. per


of BELL PEPPER per Ha per 10 Ha annum

Yield in kgs 9,000 90,000 180,000

Price per kg 50 50 50

Price Value in Php 450,000 4,500,000 9,000,000


From P9million, deduct your fixed costs, and set aside money for
the next planting. The residual net income would be P7.5mn.
What it means to be
“bankable”
Cash Flows can be anticipated

7
5
2010 2011
Return on investment
After setting aside money for next planting,
you may divide up P7.5m.

Return on the Investment


of P1.5million Pesos

Operating Costs (1,500,000)


NET REVENUE 9,000,000

set aside Money for next Planting (1,500,000)

NET PROFIT 7,500,000


Internal Rate of Return Year
Year
FIVE
FOUR
Year Year Year
ONE TWO THREE

Negative
cash flow:
Good project
Investment

Neglected project
Year Year Year
ONE TWO THREE

Negative More
cash flow: Investment Losses
Investment Needed
Plan for mango exports

Europe.
Fresh Process
Mango mangoes Export
USA.
Japan.

P20/kilo P40/kilo P400/kilo

ALEXANDERGILLES@GMAIL.COM
RISK is
manageable 70
50
Sales

7
Earnings
5
2010 2011
Start
Business Danger Bankruptcy

Challenge
Recession
Lawsuits

Labor unrest Cutthroat


Competition

CONFLICT

Shipwreck A high-value
enterprise

You can navigate around danger zones 30


Important to know
• Is it a Bankable project
• Project might be bankable, but is investment
money available.
• Investment money may be available, but is the
investor willing to invest.
• Investor may be willing to invest, but are you
able to communicate.

ALEXANDERGILLES@GMAIL.COM
Money is Money is
abundant scarce

Proposals get Proposals get


funded ignored

A simple Only Complex


business plan plans can
can work work
What makes money abundant
• If you promise • What makes for high
returns: unique selling
High Returns proposition.
at
Low Risk, • What makes it low risk:
money will become experience, expertise,
abundant. pilot project; a
guaranteed buyer.
• Even invisible money
will appear.
alexandergilles@gmail.com
Important to know
• Is it a Bankable project
• Project might be bankable, but is investment
money available.
• Investment money may be available, but is
the investor willing & able to invest.
• Investor may be willing to invest, but are you
able to communicate.

Are investors optimistic?


What makes the investor “willing”
WILLING TO INVEST:

AND especially IF
• If Good chance of
making sales & profits. • IF all things that could
go wrong, have been
addressed.

alexandergilles@gmail.com
If investors are Investors are
optimistic pessimistic

Proposals get Proposals get


funded ignored
Even a Only a
“long shot” “sure thing”
can get can get
funding funding
What makes them optimistic?

If economy grows
Philippines
2007
7%
5%

2009
1998
What makes them optimistic?

If inflation stays LOW


Philippines Rice, Fuel
8%

2%

2003 2009
What makes them optimistic?

If interest Rates go Lower


Philippines T-Bond
rate %
8%

6%
2007 2009
What makes the investor “able”

HIGH return,
at HIGH risk.
Returns, %

Low return, at Investor’s


Low risk JOB
description

Level of RISK, %
Important to know
• Is it a Bankable project
• Project might be bankable, but is investment
money available.
• Investment money may be available, but is the
investor willing & able to invest.
• Investor may be willing & able to invest, but
are you able to communicate.

Package your proposal…


Invest
Analysis

Research
Your
Proposal
Private

Public-
Partnership

JOINT VENTURE
alexandergilles@gmail.com
Mangrove:
Your project. reforest…
Business
angle?
Sustainability?

Ability to Social
bring in benefit:
sales to Food
cover costs? supply
Communicate your
business plan in
+ some ways that
requirement: pro investors can
appreciate and
If Environment? understand.

Private
Sector
leads…

Private + Some
business, expense:
partnership Benefit to
with investor. Society?
3000

2500 InvesTmenT
SALES
2000
NET PROFIT
1500

1000

500

-500 Million
Pesos
alexandergilles@gmail.com
If you want to know more:

Send me your questions:


alexandergilles@gmail.com

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