Today, I’m Going To Talk About Private Equity – TTI’s Personal Experience

Small caps, Mid caps, Large caps, Blue chips, Growth companies blah blah blah. As long as it’s listed, chances are it’d be discussed to the death somewhere.

But there are hardly any NO blog posts talking about private equity.

Zilch.

So let me be contrarian here. (Afterall, that’s the tagline of this blog right? Once in a while gotta be contrarian, even content also contrarian… LOL)

Aside from my holdings in public listed companies, I have a relatively modest portfolio of private equities. (For the uninitiated, PE = private companies that are not listed. They may be in the start up phase, may be in growth phase, may be mature companies etc. As long as they are unlisted, they are PE)

I haven’t previously written about the PE companies that I own because… well, I can’t say much actually. The share price of public listed companies are widely available, but somehow when you invest in PE companies, the details of your investment are shrouded in secrecy. The stake you buy, the price you invest in, leverage taken on, terms attached to the stake etc are all P&C.

Anyway, recently, this piece of news caught my attention:

http://www.straitstimes.com/business/sporean-founded-gaming-firm-razer-files-for-ipo-in-hk

It caught my attention because if you own any PE, you’d know that Razer’s story is the classic PE investor’s wet dream.

It’s how a PE investment should go. (Facebook is another example I guess, but I am no techie and don’t try to pretend to be one)

Basically in PE, you get the opportunity to buy a sizable stake in a company that’s unknown to most others, for a very modest sum, and you wish/pray/hope that it becomes the next unicorn, multiplying your investment many many MANY times over, and you ride off into the sunset with it.

(Actually, I’m talking more specifically about venture capitalism aka investing in the startup phase… but that’s PE too.)

Everyone talks about listed companies, and their ROIs and how much they hope to or have profited from buying this and selling that. But private equity is where the seeds for eye popping, world beating returns are truly placed.

Don’t believe me? As always, TTI always substantiates:

https://qz.com/1020934/southeast-asias-superrich-will-get-richer-thanks-to-the-razer-ipo/

No wonder can afford to buy 38 Oxley Road at market value.

To: Min Liang

ZZZZZ. Why get funding from Malaysia and Indonesia when TTI is right here in SG? I would’ve invested. $100k? $200k? $400k? I can afford that… come on, you could’ve come to me!

OK, just from this, I can tell that Lee Hsien Yang and Koh Boon Hwee were very early investors. Like Series A stage early.

Cos Koh Boon Hwee’s $198,700 is now transformed to… $37-freaking-I cannot believe it-million. This puts even Optimus Prime to shame.

Don’t get me started on the $794 million figure.

Alright, now go compute some figures and work out what’s the ROI figures for each of those investments up there. Then try to find something in the public listed entities, and see if you can find similar results. It just doesn’t happen very often. Not even in crises.

Now, quick, make an intelligent guess. How well exactly is Razer doing for the stakes to grow that quickly? What’s Razer’s annual profit?

Many millions? That’s right…. many millions…. in LOSSES!

https://www.dealstreetasia.com/stories/singapore-razer-submits-filing-400m-ipo-hk-bourse-76417/

https://www.techinasia.com/razer-files-ipo-hong-kong

“Its net loss increased from US$20.4 million in 2015 to US$59.7 million last year. (2016)”

Yup. Who says you need to be profitable to make money?!

It doesn’t make sense to the simple mind of TTI, but I’ve long realized that a lot of things don’t make sense. Almost all unicorns don’t make sense to me. Your Facebooks, Snapchats, Ubers, Dropboxes etc of the world. But hey, their founders have millions of reasons to disagree with me, quite  literally.

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Recently, I read a TheEdge article:

http://www.theedgemarkets.com/article/responsible-business-online-loans-underbanked

Mr Aidil Zulkefli.

This name jumped out at me.

Then I remembered.

5 years back, I was in discussions with him with a view to invest in his start up, which is really, the predecessor to his current UangTeman.com

Boy. This guy knows his stuff. Passion emanates from him. I guess you need to have that to survive (and do well) in such a highly competitive field, with massive odds against you.

Obviously, I wouldn’t be able to share the investment deck or patent reports since I’ve signed a NDA.

Anyway, after a long period of discussion, and after having done my DD, eventually I didn’t pursue this any further. Simply because I didn’t understand how there’d be enough scale in a market as small as SG. Monetization is also going to be difficult with the relatively small number of lenders.

Anyhow, now I’m reading that Aidil has moved on to Indonesia, and at least from the article, it seems like he knows where he’s headed. Indonesia just seems like a much much more appropriate place for micro loans compared to SG.

Also, I read with interest that the current business model is tweaked to be rather different. For loan garage, the monetization model is via a paid membership model from the lender. Now, UangTeman IS the lender.

My guess is that he learnt from his previous experience that it’d be very difficult to get scale and most lenders would be reluctant to subscribe to his paid membership model. “So screw them. I’ll do the lending myself….”

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Investing in PE is obviously quite different from your typical public companies. For starters, you’re very much at the mercy of the management team.

As far as I know, there are minimal rules when it comes to disclosures. To put it crudely, there are a million and 1 ways that the guys asking you for money can screw you up, if they choose to. Any protective covenants should be discussed BEFORE you sign anything. After that, just take it that you have donated your investment away.

All the stuff that you see in the movies where complex deals are concluded on a gentleman’s handshake……. yea. That’s why they are in the movies.

In reality, if it’s not in black and white, it doesn’t exist.

If we’re talking about the start up stages, a lot of times, you’re really betting on the jockey, not the horse. At this stage, you don’t really have much to work on. Everything is airy fairy.

The figures don’t even need to be massaged to look good. They are just…. created. Invented. There are no PEs, PBs, FCFs, EBITDAs etc etc to look at.

It’s kinda like love. You get attracted by the appearance (story) first. It’s only after a period of being involved, then you’d realize if this is the one for you. Only difference is that now, you’re asked to marry right off the bat before you can be involved. Much tougher.

The good news is that thus far, my PE portfolio hasn’t been too bad actually. I have had zero blow ups thus far, and all are doing fairly ok. 1 of which is in the pre-IPO stage, and will likely be listed here sometime in 2019/2020.

(But since my stake is in 1 of the many numerous subsidiaries of the entire entity… no, I’m not going to do a Chen Min Liang)

Oh, 1 more thing when it comes to PE.

And this is really my personal opinion: Steer way clear of F&B businesses.

I say this because personally, it seems like every Tom Dick Harry wants to be an entrepreneur these days and the F&B just seems like the most common thing to get into. The odds are heavily stacked against you.

So my personal golden rule is that if it’s F&B, I don’t even want to consider it. No chance.

It can be the next Lo and Behold Group and it’s fine with me, I’d still give it a miss.

Alright, to end off this post, I’d just include an interesting pic:

Yup. An actual, physical share certificate.

Don’t ask me why this business chose the share certificate route. I have no idea.

Everything else is all electronic, via cdp share scrips these days. The funny thing is, each time the share base gets enlarged with other investors, I get more share certificates issued to me, so I actually have a couple of these filed up.

I’d have thought they are relics.

Ah well, something interesting to own. How many people have seen an actual share certificate these days, much less own one?!

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