We structured the Anchor Platform in order to provide stable sources of capital for TFG Opportunities created by the TFG Members.
It consists of a PIPE by TFG International in a non-US listed company (the “Anchor”) combined with a joint venture between the Anchor and the TFG Members.
Additional capital, in the form of a Contingent Equity Facility, may be contributed by our partner in order to further enable the Anchor to expand and diversify its operations in order to substantially enhance shareholder value.There will be one Anchor Structure for each Anchor. Generally, the Anchor is expected to establish or invest in at least one Opportunity as part of the structure in order to actively diversify into a new, high return, industrial sector jointly agreed to with TFG International.
A perfect candidate for an Anchor is a company, which is languishing, possibly due to a core business lacking a strong future. The company has to be non-US and incorporated in a country, where corporate law is acceptable to TFG International. Clearly, a good standing with the management is paramount.
The present activity is not material; the company can either continue with its business or slowly liquidate or sell it to generate more cash for the Anchor business, depending on the wishes of the management and its board of directors.
The candidate will have the following main characteristics: (i) market cap $100 to $250 million; (ii) substantial trading liquidity; and (iii) is prepared enter into a joint venture with TFG in order to enable the company to reduce the dependence on, or dispose of, its core business and instead expand and diversify into new business sectors with the aim to substantially enhance shareholder value.
Tags: Cutting Edge, Newsletter, Public company, TFG Anchor Platform
Last month, as part of my ‘Innovation’ theme, I wrote about Principals and Principles, my take on the different roles and approaches towards opportunities, based on principles of Entrepreneurship. This month, I expand on the opportunity and the process of selecting good investments.
Opportunities land on my desk all the time, time is precious, I cannot be “All to Everyone”, and more importantly, if I choose to invest my time and resources into an opportunity with mediocre returns, I will forego other, more lucrative opportunities, something we term as “opportunity cost”.
So how we assess opportunities makes a significant difference to a) time management (and pile of papers on my desk ) b) my quality of work c) reducing opportunity cost and d) maximizing my opportunity rewards.
So what’s the answer?
Follow a quick screening, reductionist principle, do not try to fit a square peg in a round hole, and don’t be everything to everyone. Stick to your mandate, profile and investment philosophy.
The ‘reductionist’ principle is nothing more than a flow chart of decision making, pivoting each answer through a “go or no go” decision matrix. A “no go” answer and the business plan goes to the “round” file (no exceptions).
The screening part is the qualitative part of the process, and for me it is based on a number of venture screening methodologies and my own research during my time at the AGSE (Australian Graduate School of Entrepreneurship) and the ensuing years of assessing business plans and ventures. The questions asked are critical, and the way the answer is derived is just as important as the answer itself.
The screening aims to answer a number of main issues, namely:
A) Does the venture or opportunity create value to the customer?
B) If so, how? Does the venture or opportunity solve a significant problem faced by customers? Is the customer willing to pay a premium for that solution?
C) What are the market characteristics like? Is the market robust, creating high (and durable) margin and moneymaking opportunities? Is the market growth worthwhile (>20%), does the venture exhibit strong, recurring revenue generated from a low asset base? Therefore does the venture have the capacity to return attractive returns for investors?
D) What does the team look like? Have they done it before? Is there a good fit between the founders, managers and potential investors?
The quick screen seeks to identify details on the market and margins, the range of competitive advantages, the value creation and harvest issues and the overall potential, to determine whether it is worthwhile to embark into a deeper analysis of the opportunity.
Assuming the venture proposal passes my quick screen, it’s time to roll up sleeves and really take a long hard look at the opportunity. It is here where we have the opportunity to ‘tweak’ a venture proposal for added value or identify a ‘fatal flaw’ to avoid sunk costs in a venture. From here on, the screening is a collaborative effort with the founders, managers, stakeholders to determine the best approach to investors.
The screening at this stage is on the basis of answering well over 300 questions aimed at looking at a number of criterion which include:
- Opportunity
- Market and Product
- Need
- Economics
- Model
- Harvest
- Value Creation
- Sustainable Competitive Advantages
- Competition
- Intellectual Property
- Team
- Alliances
- Fatal Flaws
- Assumptions
- Implementation
- Decision Making
- Risk and Mitigation
- Scenarios (very important!)
At the end of the process, we have the ability of placing the opportunity into one of a number of categories:
- is it a cash cow?
- Part of a Fad or fashion?
- Is it a hobby?
- Is it buying the ‘entrepreneur’ a job or is it creating real value?
- Is the venture chasing the real opportunity or is it investing a ‘better mousetrap’?
- Is it led by innovative entrepreneurs or by technology led technocrats?
- Is the venture itself an opportunity seeking / led enterprise or is it a technology led one?
Quite often a business plan is rewritten based on any new information and insight uncovered.
At worst, a bad opportunity is avoided or a good opportunity is identified or ‘tweaked’ and a well written plan is confirmed to be investor ready.
At best, investors will be convinced to part with their cash and back your venture.
Since our last update on Affiliates, we spent time in Northern Europe meeting with potential clients and increasing our recruitment drive for affiliates across Europe. We are pleased to have expanded the organization with suitably qualified specialists in the legal, leasing and M&A fields.
We are well on our way to achieve our stated mission, which is to enable the TFG Members to work together on a project-by-project basis and tap into the collective expertise which has grown to date.
TFG continues to grow and attract professionals that have a desire participate in principal activities and share in the upside. Gone are the days of broker introductions and ‘clipping the ticket’ approach. We only participate where value can be added and where, thanks to our TFG Members and Affiliates, we can introduce an extra edge for developers and their projects.
In the current state of various European banks and capital markets, TFG offers a viable way forward in terms of investing in companies and projects, and securing the financing needs for a pipeline of projects into the future.
We invite prospective Affiliates to submit their details for consideration, and if you have Spanish, Chinese or Korean language skills, we would like to hear from you!
When it comes to Project Finance, if you need the cash yesterday, please do not apply. Project Finance is precise and onerous and requires months of work and planning. It is not the cheapest form of finance, but it does provide for ‘greenfield’ solutions, based on projected cash flows. Moreover, Project Finance has some additional benefits for the company, which include:
- Allows the company to ‘ring-fence’ the project and not affect its balance sheet or borrowing power.
- Lending of funds is based on a stream of cash flows generated by proposed project assets. In a sense therefore, it is also considered to be a limited recourse funding, not exposing the company’s assets outside the project.
- It provides a structure for ‘sharing’ risk and may involve several joint venture partners, particularly useful in cross border situations which could provide an opportunity for double or even triple dipping structures and tax advantages across jurisdictions.
- A Project Finance approach allows for the careful management and control where a consortium is involved in a multi-discipline project. It provides for structure, discipline and project management processes which allow for the coordination of various participants.
The top five sectors (in order) preferred by financiers in this discipline are:
- Power
- Infrastructure
- Public Private Partnerships
- Mining
- Oil and Gas
Other, emerging sectors include Large Scale Manufacturing, Renewable Energy, and Leisure based sectors such as theme parks, resorts and casinos.
However, any sector can benefit from taking a similar approach to funding, and imposing the rigour of project finance internally. Considering the inputs, risks and modeling sensitivities not only provides great insight for the management, but addresses concerns and provides comfort to investors and financiers in a way which goes beyond the usual best case scenario and worst case scenario approach most managers take.
In any type of Project Financing there are a number of risks (anything from 15 to 20) which need to be carefully considered. Part of the due diligence involved is to identify each risk, rank them in order of potential impact to the bottom line, and address where possible through mitigating strategies. I emphasize “where possible” because there are some risks that you just simply accept as part of the course, in which case you merely identify and assess how the risk is allocated (who carries that risk). So what are some of the risks we look at?
| POLITICAL
|
TECHNOLOGY | ENVIRONMENTAL |
| COMPLETION
|
SUPPLY RISK | SOCIAL |
| SPONSOR
|
RESERVE | LEGAL |
| OPERATING
|
MARKET | TAX |
| INFRASTRUCTURE
|
FINANCIAL | FORCE MAJEURE |
If you have a project and do not consider each risk, then you will see a credit committee rejecting the project (if lucky), and you will find an up hill battle in trying to obtain funding. At worst though, if funding for the project is generated internally or through third party equity, an oversight of any of the risk factors mentioned, potentially places the project and equity at an unacceptable level risk.
This type of financing takes time to negotiate, and for smaller sized projects, a contingent equity facility may be the best approach in order to save time. The facility could allow a project to begin to take shape, fund bankable feasibility studies and provide a ‘bridging’ function, while the company negotiates longer term project finance. As project finance requires an equity component as well, the facility can be used for this, as well as creating a form of guarantee on behalf of the sponsors to provide an additional level of comfort to the lender, but without tying up huge sums of cash for the sponsor (developer).
Tags: Contingent Equity, Investment, Project Finance, Risk Mitigation
We are pleased to present an opportunity for a publicly listed company (the “Anchor”) to expand and diversify its operations through investment opportunities provided by The FinTech Group (“TFG”) in order to substantially enhance shareholder value.
The Anchor will, jointly with TFG, establish joint ventures with experienced developers of project finance and other ring-fenced activities and enhance them with the capital resources from the Fund. We believe that such an approach will be a formidable force in select industry segments.
We will target investment opportunities provided by TFG Members, which will allow the Anchor to expand and diversify its operations through investments provided by the Fund.
A perfect candidate for an Anchor is a company, which is languishing, possibly due to a core business lacking a strong future. The company has to be non-US and incorporated in a country, where international law is applicable. Clearly, a good standing with the management is paramount. The present activity is not material; the company can either continue with its business or slowly liquidate or sell it to generate more cash for the Anchor business, depending on the wishes of the management.
I believe that the market cap should be not less than $50 million and not more than $250 million and with a reasonable trading liquidity in the shares.
TFG expects to arrange an internal small syndicate to make an investment in the company combined with an earn-in agreement. In addition, the Fund will be induced to make a substantial equity line capital commitment in order to enable the Anchor to expand its activities.
The Anchor will, furthermore, be invited as a founding member of the virtual merchant banking organization formed by TFG and backed by a family of investment funds geared towards investing in projects developed by members of TFG as principals. This will generate additional profits without affecting the balance sheet of the Anchor.
Affiliates and TFG Members, who are aware of a potential Anchor, are invited to submit the same to TFG.
Tags: Financial services, Initial public offering, Investing, Investment funds, Project Finance, Public company, TFG
In 2008 the financial crisis erupted with large uncertainties about the future. Institutional Investors either retracted completely or confined themselves to their home markets. The members of The FinTech Group (“TFG”) were specialist entrepreneurs focusing on cross border structured asset finance opportunities in order to create new ventures.
The remainder of TFG decided to lay a new foundation for the network, starting with the relationship with the Fund, which is providing Contingent Equity Facility commitments to companies introduced through TFG. In order to generate deals, we have built (and continue to build) a global network of Affiliates, who can present those opportunities to us and to the Fund.
Concurrently, work begun in 2010 to create a virtual merchant banking organization backed by a family of investment funds geared towards investing in projects developed by members of TFG as principals and we expect to establish the entities during 2011. A new membership structure has also been set up, where the participants get compensated on a pre-defined formula.
In addition, the CEO of the Fund has informed us that, although the Fund is only mandated to invest in public companies, they are now able to invest in project finance transactions, particularly in mining and renewable energy, by providing capital to publicly listed strategic investors, who in turn make the actual investment in the projects. The Fund has a substantial cadre of such strategic investors, who are on the lookout for investment opportunities.
With this background, we are now ready to expand TFG and invite qualified professionals to join The FinTech Group as TFG Members in order to offer them the prospect of, in a cost effective way, leverage their own skill sets through a participation in a potentially lucrative activity, instead of losing opportunities from good ideas that lack the support necessary for effective development. Membership will be by invitation only in order to maintain a high quality of the TFG Members.
A number of contacts have been asking us, if we can find investors for this or that deal. While some TFG Members may act as brokers in their individual capacity, TFG is not a broker! TFG will act as a portal between the TFG Members in order to enable them to act as principals. Funding for the projects will initially come from the Fund, but, as I mentioned above, plans are underway to complement the Fund with an in-house financing facility.
The mission of TFG is to enable the TFG Members to work together on a project-by-project basis. The TFG Members will collaborate and exchange ideas to “dream up” workable structures and business opportunities, create a business plan in order to turn them into a reality, assemble a management team for execution and raise the necessary financing. This is especially directed towards project finance advisors, who wish to redirect their efforts and expertise to becoming a principal in the projects.
In addition, TFG is currently seeking to offer membership in TFG to experienced small to mid-size, possibly venture capital backed, developers, who can offer attractive investment opportunities in project finance transactions and other ring-fenced activities.
Preferred candidates are established developers that possess a demonstrable competitive advantage in their core business and a track record of consistently delivering stated return goals. A strong, stable management team with long-term commitments to the firm, solid financials, and excellent growth potential, are essential elements.
Professionals or developers interested in learning more are invited to contact either myself or Paul Bitetto.
Tags: TFG, TFG General