Tuesday, November 11, 2014

Private Equity Investing

In my previous job, I was previously tasked to look into working together with a domestic oil distribution business in a neighboring country. The deal looked fantastic but due to the nature of such a business, it was hard to legally protect oneself when investing privately in an overseas company. The counterparty was more than willing to help keep me comfortable by even having a joint payment receivables account, but contractually it was tough to structure it such that I am able to enforce his customers to pay into such a joint account.

However in the process, I realised that investing in private businesses can yield phenomenal returns if the risks are managed properly. On top of that, having small stakes in various companies will enable to create some form of synergy between controlled businesses.

On the large scale, this would be big private equity funds like BlackRock Inc, a mulit billion dollar fund that buy huge companies. But as an individual, I realised that there was actually still room for smaller investors like myself.

My personal goal is to look out for small sustainable business that needs cash to grow or even an active investor to push the business to a new leve, with the capital required being about SGD 50k.

I have, in the past 1 year, been trying to find such opportunities. In the midst, I have made many new friends and learned about various business models. One business that I was very close to investing was a toy/game store retail business.

This business has a healthy cash flow and business model. They had about a net profit of 30% with a yearly revenue of 300k. There were looking for an investor due to a mishap in one of the purchases of supplies and needed cash to place a reorder. The deal did not go through as it was a sole proprietor company and the owners were unwilling to fully disclose their books prior to me investing 50k. I might be willing to take high risks for high returns, but without doing my own due diligence, this would have been a reckless investment decision.

You may call this angel investing, private equiting investment, venture capitalist, money lending etc. But principally, what I am trying to do is to play a part in multiple small sustainable business with great potential. By having various small controlling stakes in various companies, I believe synegies can be built where resources are shared, thus benefiting the bottom line.

Going forward, I will likely be penning down my thoughts on various business model to serve as a reminder for myself.

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