What’s In It For Investors “WIIFI” ?

Published : Feb 2, 2024

Before we get into what’s in it for the investors, it is better to ask why investors invest.

The blatant answer is of course to make money. Nothing shy or embarrassed about it. If someone puts in resources like money, time and belief in your firm and does not make money, then we have failed the investor. This is unacceptable.

It is easy for the firm to take money from the investors but it is very hard for the investors to enjoy a bountiful return from the firm. Why? The more successful the firm becomes, the more the need for more money. It is an irony.

Ten years ago in 2013, Apple had a cash hoard of $145 billion and instead of returning the money to their shareholders, Apple raised $17 billion (a record bond size then). The money was used to improve Apple’s market value and history can attest to the effectiveness of that strategy.

Suppose you invest in a company that you like at $1 per share and there are two ways you make money. First, the company pays you a yearly dividend of $0.05 and it will take you 20 years to recover your $1. The other way is for someone, investors or the company, to buy over your share higher than your entry price. Growing companies usually do not have excess cash to buy back their shares. Thus you are left with the only way – that is to sell your shares to other investors at a higher price. The company read the investors’ minds and worked hard for a public-listing and the minimum listing price as required by the stock exchanges is $5. You can stag it – sell the shares on IPO day or you could hold it and record a book gain.

So in investment lesson number one is to “how and when to sell it before you buy it”. PEX Issuers must be explicit in disclosing what exactly are the “exit” possibilities for the investors – for instance a public-listing or a pending trade sale or a reverse take- over or a possible merger with a listed entity or share buy back. This is key.

In recent years, we have so much buzz about impact investing and investors can compromise their returns if the investment does have an impact on the environment, social development or good governance. There are investors who are willing to forgive their loans and shares if the issuer can be audited that the business meets at least 5 of the 17 United Nation Sustainable Development Goals. These philanthropic investors are highly commendable for their benevolentness. They have high expectations on the issuer to deliver an impact to promote the welfare of the target market.

Some seasoned and well-endowed investors invest to give generous support to the entrepreneur, the business vision and cause, unserved and underserved target segments. No strings attached. They just want to sow their seeds and hopefully a good harvest to benefit the target segments and issuer.

Astute investors believe that their investment portfolios should be diversified with different types of investments – stocks, debts, indexes among various industries and age of the issuers. They believe such risk mitigation portfolio strategies should be evenly spread like investing in some new companies with long runways in emerging industries and high growth economies. Another reason for this is that investors want to “get wet” and learn about new things, new industries, new regions and new firms.

Smart investors know that the growth potential in new new gig is exponential. For instance, if you had invested in Nvidia in 1999 when they IPO at $12 and held on to it till now which was last traded at about $600, you would have gained 49 times. Investors today have only nano-sec attention span and investment tenures are short.

Some invest to see how harmful or useful that firm can do to them. Many big firms adopt this preemptive strike investment to have a watching brief. Further investments can be made to expand the investor’s influence or maybe an outright acquisition could give all parties strategic advantages.

Now that we know why the investors are investing in us, we have to tailor in our Offer Memo, upfront, what exactly is in it for the investors.

Next, the natural question the investors would ask:

“How exactly is this company going to deliver on its plans and forecast?”