As you start earning, it is good practice to invest the money. Investments provide good financial security for the future. However, when there are so many different types of investments, it may be confusing. Today, let us learn about ETF, which is a simple means of investing to obtain good retains.
What is an ETF?
ETF stands for Exchange Traded Fund. Here, you can buy several bonds/stocks at the same time. An investor can buy shares of ETFs. The ETF share prices can fluctuate throughout the day. They are listed and traded on an exchange. ETFs hold multiple underlying assets.
ETFs offer good alternatives to individual stock picks. While services like Motley Fool make it easier for investors to choose stocks (read the full review here), many investors prefer the simplicity of ETF investing.
There are certain concepts to understand before you can invest in ETFs.
Expense ratio – The fee that ETFs charge is called the expense ratio. For beginners, it is recommended to go with smaller expense ratios.
Types of ETFs – There are two types of ETFs – passive ETFs and active ETFs. Passive ETFs (also called index funds) track an index and update the portfolio from time to time. If you are new to this, start with passive ETFs. In an active ETF, an investment manager manages the portfolio of securities.
Investing in ETFs
There are 2 ways to buy/sell an ETF. Three points to note before investing in an ETF –
Ensure that you have a Demat account. It is needed to hold the ETF units.
Open a broker account with a broker/sub-broker.
Complete your KYC. You will need documents for proof of identity, proof of address and your bank account details.
You can now use the registered bank account for your ETF investments. You will need the current price of a single share to start investing. Check whether your broker is registered with the stock exchange. Now, there are two ways to buy and sell ETF shares.
The first way is to call your broker. You can tell the broker about your trade specifications and buy/sell ETF units through the broker.
The second way is to use an online trading terminal. You can place your order on the terminal.
Why should one invest in ETFs?
ETFs are considered as the ideal investment for youngsters. This is because they provide a host of benefits. Some of the benefits are discussed below.
Reasonable transaction charges – Compared to other index-tracking products, you incur lesser transaction charges on ETFs
Diversification – Diversification is a mantra that the majority of investors swear by. With ETFs, you can spread the risk over several securities. Stock-specific risk is minimum in this case. In a single transaction, you are exposed to a variety of stocks, sectors and commodities
Liquidity – ETFs provide ample liquidity. They can be traded throughout the day. If you have limited capital, you can immediately exit a losing investment.
Tax-benefits – If you are an ETF investor, the dividends you gain are tax exempt. To sell an ETF unit within 12 months, a short term capital gain tax is levied.
ETFs have the potential to produce great investment growth over a long period.
The number of small businesses is the exact opposite of its size, which comprise the majority of businesses in the USA. According to the US Small Business Administration, small businesses account for 99.7% of all businesses in the USA, or a total of 28.8 million. These small businesses currently have 56.8 million employees and covers 48% of the total for USA.
The numbers speak the same with small business funding. Many financial institutions are taking advantage of the large market resulting in more small business funding solutions available. The same Small Business Administration (SBA) report said that there are about 5.2 million small business loans (valued at $ 73.6 billion) released by US lending firms in 2014.
The market for small business lending is robust, and one can always find a solution that can fit any need and preference. A business will always have the answer on why get a small business loan. Here are some of the available small business lending solutions, and what you need to know about them:
Conventional Bank Loans
This is usually the first option when it comes to any kind of financing, whether for personal or business purposes. Small businesses, however, find its loan eligibility hard to achieve, and its requirements difficult to secure. They also deploy stringent terms and compliance measures.
The reason why most businesses flock around banks is because the bank’s loans carry smaller interest rates and they can also be generous with the amount as long as the eligibility criteria have been met. The disadvantage would have to be its strict requirements and the need for a collateral.
Alternative Lending Firms
They appeal most small businesses because of lenient terms and flexible repayment options. It is also more convenient to secure alternative funding because most providers can process your application online. This is most especially valuable for emergency cash needs.
Another advantage in dealing with alternative lending firms is their lenient terms and eligibility criteria, a lower requirement for credit score, and its faster processing and approval. The downside, however, is the excessively high interest rates and other additional upfront fees.
A U.S. Small Business Administration (SBA) loan system is a funding solution backed up by the US government, which aims to support its citizens with the means to build and expand their own businesses. The SBA doesn’t provide the loan itself but serves as a guarantor to the loan coming from both private and public financial institutions that include banks and alternative lenders.
Small Business Administration partners with these financial institutions to offer a wide range of loan types that can suit the different funding needs of small businesses. It has a regulated set of guidelines, which all partners follow, in order to protect the interest of both the borrower and the lender. SBA guarantees for a percentage of the amount of every loan approved, which is about 70–90%. This minimizes the risk for the lender. On the other hand, the fact that a government small business loan is enough to know that the borrower is protected under its own laws and regulations. SBA loans offer lower interest rates than other alternative lending institutions.
The downside of an SBA loan is its long process, and it requires more paperwork. There are also top up fees to be paid when you avail.
Questions To Answer Before Getting an SBA Loan
Before approaching an SBA loan provider, make sure that you have the answer to the following questions:
What is your borrowing intent?
How urgent is your need?
What are your business’ risks?
In what stage of development is your business?
How much do you need?
How long can you pay the loan back?
What is your business plan?
How long have you been operating your business?
What is the cycle of your business? Is it seasonal or consistently producing revenue?
By answering the above questions, you can help the SBA loan provider to assess your capacity and risk tolerance. It can also determine if you are eligible or not.
Reasons Why You May Be Denied From an SBA Loan
Small Business Administration loans are attractive to small businesses because of its advantages like low interest rates, flexible repayment terms, varied loan types, and primarily because it is government backed-up. Most alternative fundings compensate the higher risk involved with their grants by imposing higher interest rates, which can go as high as 80% APR.
Unfortunately, not everybody that applies for it are automatically approved. Many businesses have varied problems with small business loans that can hinder their growth, and here are the most probable reasons why you may not be granted with an SBA Loan.
Yours Is a Startup Company
An SBA loan requires for a business to be operating for at least 2 years.
You may opt for other funding options like angel investing or to a venture capitalist. There is also an online community-based funding solution like crowdfunding, which can cater to start up entrepreneurs. Cash flow based funding like merchant cash advances is also viable. There are also alternative lending companies that specialize in giving capital for startups, but the grant is not that big.
Yours and Your Business’ Credit Score Is Low
Like with conventional bank loans, SBA loans require a strong credit score, which is the most prevalent reason why most borrowers get denied.
A credit score, which most people might probably doesn’t know, is the numerical equivalent of your commitment to paying off your debts. It is computed based on your debt and credit histories with banks and other financial institutions. For example, you own a credit card. When you use your card, you will be billed on a designated cut off. If you diligently pay on time and in full amount and you are consistent with this for a long period of time, then, generally, your credit score will be high. When you do the other way around, say you don’t pay the full amount or you pay late, of course, your score will be low. But having no credit history can equally hurt your credit score because basically, there will be no means for a lender to assess your willingness and responsibility to pay.
There may be a lot of reasons why a business, or you, have a low credit score, and other alternative lending agencies are not too particular with these. Find one that can grant a loan for someone like you, which is also an opportunity to build your credit score again.
You Do Not Have Enough Collateral
Small Business Administration loans like bank loans do require a collateral. This collateral is being shared with the lender and the SBA because they share a part of the guarantee with the loan. Because of this, it may also require you a personal collateral too. This is also the reason why SBA loans cannot cater to startups because most of them doesn’t have more assets that can serve as a collateral.
Your Company’s Industry Is Part of the Grant’s Exclusions
Aside from startups, SBA loans won’t approve the loan applications of businesses in these industries:
Businesses that are engaged in lending
Life insurance companies
Businesses outside the USA
Businesses engaged in networking or any incentive-based model and pyramiding
Businesses that get a third of its gross revenues from legal gambling
Lobbying or political organizations
Speculative businesses like oil explorations
You Don’t Want the Risk for a Personal Guarantee
Small Business Administration loans will need your personal guarantee, which meant your car, your home, and other personal assets. When you give this to the bank as a collateral, you give it the power to sell those when you cannot pay back your loan anymore.
There are other small business loan with no personal guarantee to ask from you, which may be viable if you are intolerant with this kind of risk.
So how to convince the best SBA loan providers to grant you that loan? You’ve got to be positive when it comes to these 5 C’s:
Character – this implies your managerial skills or the strength of your management team. Your team should exemplify a strong sense of responsibility when it comes to their roles in your business.
Credit Score – this is one important factor that SBA loan providers do look for, and it is also one of the hardest to repair. Even though you may be denied with an SBA loan, there is a lot of room in getting another small business loan provider that will fit your eligibility and needs.
Capacity – a strong business plan and a steady cash flow are strong indications of your capacity to sustain in paying your liabilities.
Capital – before getting an SBA loan, you should know how much additional capital you really need to finance your venture. This also includes information about the nature of your intent and the specific reason/plan for the grant.
Collateral – there are different assets that can serve as collaterals other than real estate like personal assets (house, car), accounts receivables, and credit cards. When the cash flow and profits are good, it is best to slowly build up your assets, which can also help you for your unexpected future additional funding needs.
Spain, France, and Nova Scotia are favorite destinations among Americans looking to invest in a property overseas.
You are on a vacation to a European or South American destination, and you love everything about the place. The weather is nice, food is great, people are hospitable and friendly, it is not crowded like New York or London, plus the prices are comparatively low by American standards. You like the place so much, that you’ve considered living here. If not that, at least buy a decent apartment or a condo, so that you can visit whenever you like.
Purchasing a property overseas is exciting, but only after you are clear about one rule – the heart should never rule the head where money is concerned. Also, it is essential that you follow the right procedure, and avoid using any unfair means in securing real estate. Consider doing all the things you would do if you were buying real estate in your homeland. Here are some tips that you can follow.
Know the Market Thoroughly
Be aware of rising and falling trends of the market. Knowledge about the rates can be helpful if you want to buy when prices are down, and sell as soon as the market sees an upward trend. Also, some countries have strict rules that prevent or limit property ownership to foreigners. Hence, it is good to know whether or not you have the legal right to purchase property in that country, to avoid any scams or disappointment. It is important to do your homework before stepping in the market of an alien country.
Beware of Impostors
The global real estate market is filled with impostors who con people, and often get them involved in a financial and legal mess. Even so, this doesn’t mean that everyone you come across is a thug, but being aware of what is right and wrong is a smart move. If you are dealing with a real estate agent who does not carry business cards, and does not have an office, he/she is probably someone you should avoid. Also, there are certain countries that don’t regulate their real estate industry; hence, agents don’t even require a valid license. Be extremely careful here, and proceed only after doing thorough research.
Only Purchase What You See
Real estate agents are idealists. They will make you dream about well-built roads, world-class amenities, and other facilities that are nowhere in plain sight. The catch here is, once you have signed the contract, you are the owner of the area and the illusions surrounding it. I have nothing against agents here, but it sounds risky to invest your hard-earned money for just barren land. Consider all the things that can go wrong here. Hence, only buy what you see.
Always Seek Professional Assistance
Great deals at an affordable price can be achieved if you buy a property directly from the owner. Nevertheless, don’t forget that you are in a foreign land, and taking the help of a reliable professional can be useful to avoid various pitfalls when buying property in a foreign land.
Signing a Contract
Never sign a contract that you don’t understand. Always ask for two versions of the contract – one in English, and the other in the local language. Bring along your legal adviser to confirm that the English version is a true translation, and does not contain any errors, extras, or omissions. Read the contract thoroughly, and ensure that you and the seller both agree to the different terms and conditions decided.
Try to Pay Cash
If you really like the property and know that this is the final deal, try paying the owner cash. It is a tough decision to take, but it is important to understand that financing mechanisms, like mortgages, aren’t as stable in foreign countries as they are in the US. In most European vacation spots, property transfers are mostly done in cash. For those who can’t do without a mortgage, seek the help of your real estate agent and lawyer to know more about such destinations.
Verify the Title
In the US, if you acquire a property you get a warranty title that states you are the legal owner. However, in countries outside the States, this title can create quite a problem. This is highly possible in European countries. You see, World War II had created many boundaries in the world, and it is quite possible that once you purchase the property, a recent descendant of the family can suddenly appear to claim his/her property. The situation sounds dramatic, but it can surely happen. This crisis can be avoided by taking the help of a notary. A notary can help verify legal documents, and also ensure that there are no gaps in the property’s history, and you are the rightful owner.
Knowing the Native Language
Relocating to a country without knowing its native language can get quite difficult. The best thing to do is to join a language course, and get things in motion soon. However, if you are not up for this challenge, a better idea would be choosing a country where English is spoken in large numbers.
Valuating the Property
Property valuation is an important step, especially in a foreign land. You need to know all the pros and cons of the property before signing the papers. Hence, ensure that an independent valuation of the property is carried out in your presence.
A Local Bank Account is Necessary
You will have to open a bank account in the country where you have chosen to live, and apply for a Certificate of Importation, so that bringing in money from your home country won’t be a problem. Also inquire about online money transfer facilities, so that you can pay the bills and taxes associated with the house from time to time.
Try to bargain if you are good at it; chances are you might get a great deal at a low price. Also, don’t shy away from seeking professional services that can ensure a smooth transaction overseas.
I have found that many entrepreneurs are confused by the differences between the various flavors of angel and venture capital. This is not surprising since the categories used are overlapping and are often used inconsistently by different investors. However, there are some broad generalizations that can be drawn – typically based on the timing of the proposed investment and the typical purpose of the investment in the company’s lifecycle. Depending on the timing, you can also draw some basic conclusions as to the type of investor that will be involved and, in each category, generalizations can be made as to the type of security the company will sell and the magnitude of return the investor will seek.
The earliest stages of investment are usually characterized as seed rounds, proof of concept investments or angel investments. These investments usually do not occur until after the investor has tapped out his friends and family (in what is often characterized as the “friends and family” round). The money invested is intended to allow the founders of the company to do their initial research, to complete the initial programming or to apply for the initial patent(s). Companies at this stage usually do not have a saleable product and do not have very many employees, other than the founders/inventors. The investors are almost always NOT traditional venture capital funds. Rather, they consist of wealthy individuals or groups of individuals that are willing to invest their own money and take the extreme risk involved in making equity investments into companies that often only have a good idea. Alternatively, the investor may be a government or university funded incubator that was established to help entrepreneurs or scientists get their ideas off of the ground. In this stage, the amount of the investment is typically relatively small – e.g. $100,000 to $500,000, seldom more than $1,000,000 in total. Also, the investor usually takes common stock in the company – the same stock that the founders get. Alternatively, the investor will take a convertible note that allows them to have the protection of debt at the beginning and also allows them to convert at the valuation established by later investors. Investments at this stage are extremely risky and are subject to significant dilution when new investors come in during later stages. Consequently, angel investors look for returns of at least 10x their initial investment, and sometimes as high as 20x or 30x their initial investment. The next stage of investment in a typical company’s life cycle is early stage venture capital. This type of investment usually is not available to a company until it has a proven product and a business plan. However, it is not necessary that a company be profitable or even be producing its product. The funds the company raises will be used to mass manufacture the product, market the product, build a sales force and further develop the product. For this investment, the company will be able to attract early stage venture capitalists. These venture capitalists often have smaller funds which are more suited to making the relatively smaller sized investments found at this stage of a company’s life. In this stage, the amount invested is typically in the $1,000,000 to $5,000,000 range. The early stage venture capitalist will almost always be investing in Series A preferred stock of the Company. This security will be superior to the common stock held by the founders and any angels and will typically come with dividend rights, liquidation preferences, some form of anti-dilution rights and a right of first refusal on stock sales by the founders and angels. Sometimes it may also come with pre-emptive rights, redemption rights and drag along rights and other rights and preferences. The venture capitalists at this stage will look for returns of at least 5x their initial investment and would gladly accept higher returns. There may be multiple additional rounds of equity financing after the Series A round. These types of funding are often called growth capital or mezzanine financing. Usually, the company will either be close to profitability or will have a clear path to profitability and the funds are meant to allow the company to expand its sales force and marketing efforts and ramp up its revenue growth.
The money may also be used to develop additional products or to research expansion ideas. These investments are usually made by the larger size venture capital funds and the amount invested can range from $1,000,000 to $25,000,000 or higher – depending on the company and the market opportunity. The investment will typically be made for additional rounds of preferred stock – for example, Series B or Series C preferred stock – and each successive round will generally having superior rights and preferences to the prior rounds. Venture capitalists at this stage of investment may still look for 5x investment returns, but depending on the opportunity and the trajectory of the company, will often settle for 2x or 3x returns. Occasionally, a company in the growth phase of its life cycle, or that is on the cusp of the growth phase, will raise bridge capital. This is typically debt that “bridges” the gap in funding between rounds of venture capital financing. Usually, it takes the form of a convertible note that will automatically convert into the next round of preferred stock, sometimes at a discount. The lender may be an existing investor in the company or it may be a new venture capital fund that is contemplating making the follow on round. Another type of financing that is available to companies in their growth phase is venture debt. This is a loan from a bank that is often securitized by the company’s accounts receivable, inventory or equipment. The venture lender will take warrants in the company to help increase its return on the loan. Typically, these lenders seek combined returns in the 12 to 18% range. The final type of financing that a company may seek can be characterized as acquisition or buyout capital. This type of capital is used to purchase the assets or stock of other businesses that will then be adsorbed into or added onto the company. The investor may be the company’s existing venture capitalists or it may be a private equity fund that is building out a platform in the company’s industry. In the later case, the investment may come with a right to purchase the company outright in the future. This type of financing also occurs when a company’s venture capitalists start planning their exit strategy. By putting together the right pieces it may make the company more attractive as an acquisition candidate or perhaps more eligible for an IPO.
The following is Part 2 of my five-part series on the roles of angel investors and venture capital investors in emerging technology sectors with explosive upside potential, such as the nanotech, cleantech, biotech, information technology and new media sectors. In Part 1, I gave a general overview of the playing field. Below, I examine the stages of an emerging growth company’s lifecycle and the types of investment that it hopes to obtain at each relevant stage. Introduction Many investors are confused by the differences between angel and venture capital. This isn’t surprising; the categories are overlapping and are used inconsistently. However, there are some broad generalizations that can be drawn, typically based on the timing of the investment and the purpose of the investment in the company’s lifecycle. Depending upon the timing, you can draw some basic conclusions as to the type of investor that will be involved (e.g. single angel vs. angel consortium vs. venture capitalist). And, in each category, you can glean the form the investment will take (e.g. common stock vs. convertible debt vs. preferred stock) and the size of the return investors can expect. That is, if there’s a return–very few private emerging growth investments are actually a success. More below the fold. Seed Round The earliest investment stages are usually characterized as seed rounds, proof of concept investments or angel investments. These investments usually don’t occur until after the target entrepreneur has tapped out his friends and family in what’s usually called a “friends and family” round. The money you invest is intended to allow the founders of the company to do their initial research, to complete the initial programming or to apply for the initial patent(s). Companies at this stage usually don’t have a saleable product and don’t have very many employees, other than the founders/inventors. Traditional venture capital funds very rarely invest in seed rounds. Rather, seed investors typically consist of angels that is, wealthy individuals or groups of individuals that are willing to invest their own money and take the extreme risk involved in making equity investments into companies that often only have a good idea. Occasionally, a seed investor may be a publicly or privately funded incubator established to help entrepreneurs or scientists get their ideas off of the ground. In the seed round stage, the amount of the investment is typically small, say $100,000 to $500,000, seldom more than $1,000,000. Also, the investor usually takes common stock in the company–the same stock that the founders get. Alternatively, the investor will take a convertible note that allows him to have the protection of debt at the beginning but with the possibility of converting and receiving the upside of equity. Typically, the conversion will occur in concert with the closing of the next round of investment and will be at the same per share price used in the next round. Often, you receive some sort of additional incentive for making a seed round investment such as a conversion discount or grant of warrants. Investments at the seed stage are extremely risky and are subject to significant dilution when new investors come in during later stages. Consequently, angel investors look for returns of at least 10x their initial investment, and sometimes as high as 20x or 30x their initial investment.
Early Stage Venture Round The next stage of investment is early stage venture capital. Investors usually aren’t interested in making this type of investment until the company has a proven product and a business plan. However, it isn’t necessary that the target be profitable or even be producing its product. The funds invested will be used to mass manufacture the product, market the product, build a sales force and further develop the product. Typically, these sorts of investments are made by early stage venture capitalists, larger angels or angel consortiums. Early stage venture capitalists and angel consortiums usually have smaller funds to deploy which makes them more suited to making the relatively smaller sized investments found at this stage of a company’s life. In this stage, the amount invested is typically in the $1,000,000 to $5,000,000 range. The investors will almost always be purchasing Series A preferred stock of the target. This type of stock is superior to the common stock held by the founders and any seed round angel investors and will typically come with dividend rights, liquidation preferences, some form of anti-dilution rights and a right of first refusal on stock sales by the founders and seed round angels. Often, the investors will also receive pre-emptive rights, redemption rights, drag along rights and other rights and preferences. Investors at in early stage investments will typically look for returns of at least 5x their initial investment and would gladly accept higher returns. Growth Stage Venture Round After the Series A round, there may be multiple additional rounds of equity financing. These types of funding are often called growth capital or mezzanine financing. Usually, the company seeking this sort of investment will either be close to profitability or will have a clear path to profitability and the funds are meant to allow the company to expand its sales force and marketing efforts and ramp up its revenue growth. The money may also be used to develop additional products or to research expansion ideas. These investments are usually made by the larger venture capital funds and the amount invested can range from $1,000,000 to $25,000,000 or higher, depending on the company and the market opportunity. The investor typically will receive additional rounds of preferred stock–for example, Series B or Series C preferred stock–and each successive round will generally have superior rights and preferences to the prior rounds. Investors at this stage may still look for 5x investment returns, but depending on the opportunity and the trajectory of the company, may settle for 2x or 3x returns. Bridge Round Occasionally, investors will be willing to invest bridge capital into a company in the growth phase of its life cycle, or one that’s on the cusp of the growth phase. This investment takes the form of debt that “bridges” the gap in funding between rounds of venture capital financing. These investments range in size depending on the company and the market opportunity and they’re made by all types of investors, depending on the size of the investment. The lender may be an existing investor in the company or it may be a new angel or venture capital fund that’s contemplating making the follow on round. Usually, the debt will be represented by a convertible note that will automatically convert into the next round of preferred stock, sometimes at a discount. Also, investors will usually want some sort of warrant coverage to provide equity upside in the deal. Investors at this stage expect a blended return that takes into account the interest rate on the debt and the potential value of the equity. These target returns vary greatly, but often move in the 12 percent to 18 percent range. Buyout Capital Round The final stage is characterized as acquisition or buyout capital. This is used by the company to purchase the assets or stock of other businesses that will then be absorbed into or added onto the target company. The investors may be the company’s existing venture capitalists or it may be a private equity fund that’s building out a platform in the company’s industry. In the latter case, the investment may come with a right to purchase the company outright in the future. This type of financing also occurs when a company’s angels and venture capitalists start planning their exit strategy. By putting together the right pieces it may make the company more attractive as an acquisition candidate or perhaps more eligible for an IPO. In the next three parts of this article, I’ll explore angel investing, angel syndicate investing and venture capital investing, in greater detail and I’ll discuss the important characteristics of each mode, including typical legal and business issues.
Perhaps the biggest financial event for millennials this year is the listing of Snap. The concept of owning a piece of a company that is a daily part of our lives is apparently the reason why a great deal of millennials started investing in the stock market.
If the listing of a millennial-owned, millennial-driven company could lead to so many of us taking interest in the stock market, then surely the listing of more millennial-owned companies should be much sought after.
Meet Donna Nemer. She is the Director at the Johannesburg Stock Exchange (JSE) and a former Managing Director at Citi bank in New York. Donna found herself in the world of global banking when she realized that it would afford her the dream of working and travelling extensively throughout the world. We decided to tap into her well of knowledge to learn more about what it would take to get more millennial-owned businesses listed on a stock exchange.
Millennials are known to be the entrepreneurial generation. An article by Fortune has labeled us as “millennipreneurs,” as we are starting more companies, managing bigger staffs, and targeting higher profits than our baby boomer predecessors. How important is it that startup founders think about the possibility of listing their companies as they grow in profits?
The growth of small- and medium-sized (SME) businesses is crucial to the health of emerging economies, as these companies are key employers.
It is with this in mind that the stock exchanges such as the JSE created AltX. The AltX is for companies that are well established, but not yet ready to list on the JSE’s Main Board.
Given our tough economic climate, many countries are increasingly looking to SME businesses to promote growth and make a dent in the unemployment figures. However, access to financing remains a challenge that hinders expansion for many businesses, as banks are increasingly unwilling to lend to smaller businesses.
This is where a listing on AltX can be an exciting opportunity for smaller businesses to raise capital. With this said, it is important for stock exchanges to attract SMEs and market to them in the way that they need to be marketed to. We need to be speaking the same language as them, using more online and digital platforms and using faster and better technology, making it easier for them to do business with us. Access to capital markets is critical to small companies that are looking to expand their brand and grow.
We are very proud of the track record of AltX in that over a third of the companies that have listed have successfully grown and migrated onto the main board of the JSE.
When can a startup founder start considering listing their company?
The decision to list your company’s shares on a public market is a significant one. It must be based on an honest and realistic assessment of your company. A listing on the JSE improves the ability to access capital to fund acquisitions and organic growth. Local scrip or local fund raising can be used to fund the company’s expansion plans.
As your company grows and matures, listing on the JSE may be the best vehicle for your company to raise capital, improving your profile.
The minimum criteria to satisfy a listing are as follows
Share Capital R2 million ($151,000)
Historical financial information on listing Minimum of one financial year required
Profit forecast One full financial year required unless three year profit history is provided
% held by public shareholders 10% ( applicable on listing)
Board of Directors Competition of the AltX Director Induction Programme (this can be done prior to or after the listing)
A listing means that the company will go public so even if a company meets the listing requirements, timing is important.
Key considerations for going public include:
Have other alternative financing sources been explored and/or exhausted? Does your company need public financing for growth?
Is your management team experienced and balanced? Does it include directors and senior executives with a proven track record in managing public companies
Is there a well-developed business plan that identifies potential revenue and income as well as the resources necessary to sustain growth and success? Is your company prepared for the compliance and disclosure requirements that public companies are required to follow?
Is the market size for your company’s product or service sufficient to sustain the growth plans and expectations that will attract broad investor interest? Is your company profitable, or has its product reached commercialization with evidence of market acceptance?
There are also other factors to consider such as transparency and costs. When it comes to ownership, the owners and founders of the company must consider how much control they want to retain. When a company goes public, a reasonable percentage of shares must be publicly owned and tradable.
Can you briefly take us through the Initial Public Offering (IPO) process.
Interact with the Primary Markets Team of the JSE Decide where your company will feel most at home – on the main board on the smaller AltX board, which is for small to medium companies Find a sponsor (Main Board) or a Designated Advisor (AltX) Submit all required documents to the JSE Issuer Regulation division Embark on a capital raising roadshow Finally, List
What is the most interesting Initial Public Offering (IPO) process that you have been a part of and why?
All IPOs are different and I must confess that I have found them all exciting. To see the company CEO and executive team, together with advisors, accountants, legal advisors all together to open the market is truly exceptional. Here in South Africa we call the sound of the kudu horn and beat the African drums to announce our listings which is not just steeped in our cultural heritage but gratifying after all the hard work that goes into a listing.
That said, two recent listings stand out for me personally. One was the SA listing of AB InBev, a large multi-national company that, while acquiring SAB Miller, listed on our local market. It was one of the largest listings in JSE history and really put the high quality of our country’s capital markets in the international spotlight.
The other one would be Choppies, a Botswana based retailer that listed in SA and raised capital for its African expansions strategy, thereby demonstrating the role that the JSE can play to grow intra-African trade and investment ties and positioning SA as a regional financial center.
In your experience do first time founders usually get support from a leadership perspective when they list their companies? Especially considering the age of some startup founders, like Evan Spiegel of Snap who listed his company at only 27.
There is no question in my mind that first time founders gain enormous insight and experience when they open their companies up to public shareholders. Firstly there is the requirement for a much higher level of transparency and disclosure which go way beyond what is done when companies are in private hands.
The need to explain strategy and performance to a broad range a stakeholders requires founders to be open, honest, to really understand their business and to publicly demonstrate the duty of care that he or she has.
For some founders, this comes naturally but for others, the support from the executive team, the outside accountants, legal advisors and others are critical to their success and being able and willing to accept that support is an important character trait. There are plenty of examples of both successes and spectacular failures as far as this goes!
Lastly, what is the best advice on money that you’ve ever received and who was it from?
I’m an old fashioned investor that believes in diversification and investing in real assets, as opposed to financial assets. It’s typical of all that we learned in my generation. Time will tell if it was good advice!
So you always wanted to be a partner in a venture capital fund? Well, here’s how it works. The following is Part 3 of my five-part series on how to invest in early stage technology companies as an angel investor or through an investment in a venture capital fund. Privately held companies in emerging technology sectors–such as nanotech, clean tech, biotech, info tech and new media–frequently have exciting upside potential that can only be fully harnessed by investing in them when they’re in their infancy. In Part 1, I gave a general overview of the playing field and in Part 2, I examined the stages of an emerging growth company’s lifecycle and the types of investment that it hopes to obtain at each relevant stage. Here, I’m going to explain how you can invest as a limited partner in a venture capital fund. When you invest in a venture capital fund, your role in the early stage company will be completely “hands off.” You’re investing in the vision and/or track record of the venture capitalist and will rely on the venture capitalist to make and manage your investment decisions. It’s crucial that you match your investment goals with venture capitalists sharing similar goals. For example, an investor that wants to maximize exposure to nanotech and its commercialization would not want to invest with a generalist venture capitalist or a venture capitalist focused on the Web 2.0, SaaS or cloud computing sectors. Before you invest in a venture capital fund, there are several things to consider which I detail below the fold.
1. An investment in a limited partnership in a venture capital fund is long term and illiquid. Long term in this case typically means it will be 10 years before all of the fund’s investments will be liquidated, sometimes even longer. Money will only be distributed to you as the venture capital fund liquidates these individual investments. There’s no easy way for you to get your money back and there’s typically no market for you to sell your limited partnership interest.
2. You’ll be required to qualify as an “accredited investor.” For an individual, this means you must either have a net worth (or joint net worth with your spouse) in excess of $1,000,000; or have income exceeding $200,000 in each of the two most recent years; or joint income with your spouse exceeding $300,000 for those years; and a reasonable expectation of the same income level in the current year. Some funds have even higher net worth thresholds. If you’re unable to meet the fund’s investment criteria, they won’t accept your investment.
3. The fund will require you to make a sizable upfront investment coupled with a substantial commitment for future investment. Most funds require, at a minimum, a $100,000 up-front investment with a minimum commitment in the $500,000 to $1,000,000 range. These numbers vary greatly depending on the size of the fund and the experience of the venture capitalist, however, they very rarely fall below these thresholds. The remaining bulk of your commitment will be tapped by the venture capital fund over a period of four to six years known as the “drawdown” period.
4. Investing in emerging technology companies is exceptionally risky and there’s a strong possibility that a number of the venture capital fund’s investments will be worthless and that none of these investments will see significant returns. The risk of losing all of your investment is higher when investing in a venture capital fund than when investing in public equities. However, it’s probably lower than if you invest directly in companies as an angel or angel syndicate. The reason for this is twofold: You’ll have exposure to a larger number of potential and actual investments through a venture capital fund; and the venture capitalists are theoretically better at identifying emerging trends and companies that are good bets than angels or angel syndicates. Now, if you meet these criteria, can afford to have your capital locked in for a long period of time, and don’t mind the risk of substantial losses, the potential benefits are substantial–annual returns can often reach up to 30 percent for successful venture capital funds. If you decide to pursue investing in a VC fund, you’ll be given a private placement memorandum that describes the fund’s objectives, the experience of the venture capitalists and the terms of your investment. It also includes a comprehensive “risk factors” outline that provides extensive detail on the various risks that you’ll be assuming. You’re also given the subscription agreement you must complete to make your investment and a copy of the limited partnership agreement that will govern the legal terms of the fund. Familiarize yourself with these legal terms and consult with your attorney and other professional advisors before you pull the trigger. Bear in mind, the terms of the limited partnership agreement are typically not negotiable. This makes a certain amount of sense since the venture capitalist fund will usually have 20 to 30 different investors and may talk to hundreds of potential investors. These investors commit at different times and commit different amounts of money, so it would be extremely time-consuming and arduous to negotiate separately with all of them. Now, if you were going to commit for a substantial percentage to the fund, then you’ll have more latitude on terms and conditions. However, the typical individual investor is investing a relatively small amount when compared to the public pension funds and other large institutions investing and, consequently, he/she has relatively little bargaining power. Fortunately, the terms of venture capital funds don’t vary much from “market” rates that have evolved over the last 20 to 30 years. This can make it easier for you because you can simply check to see if the terms you’re being offered are in the market range. A few of the most common economic terms are the management fee, the carry, and reinvestment rights. Typically, governance rights for limited partners in venture capital funds are minimal. The management fee is the lifeblood of a venture capitalist. This is the money that they live off of from day to day. Usually, the management fee will be a percentage of committed capital. That is, the total capital that everyone has committed to the fund, not the capital the fund has actually drawn down. Traditionally, this fee has been 2 percent but anything from 1.5 to 2.5 percent is common, depending upon the size of the fund. With a larger fund, the percentage may be lower and vice versa for a smaller fund. This fee is taken annually and can add up relatively quickly. For example, if the fee is 2 percent, on a $200,000,000 venture capital fund, the venture capitalists collect $4,000,000 a year for 10 years-–or $40,000,000. And this is completely independent of whether they make good investments. Occasionally, the management fee will be capped at actual budgeted expenses or will scale downwards to reflect the fact that more work is required during the funds early years; however, a flat percentage is the norm. The carry is the second form of compensation for venture capitalists. However, unlike the management fee, the carry is directly tied to success. The carry is the percentage of the fund’s profits that the venture capitalist gets to keep, typically 20 percent. Often, the investors are guaranteed some ordinary rate of return on their investment (eg, 6 percent or 8 percent) that the fund must first deliver before the carry will kick in. However, the latter distributions will be tiered up so that the venture capitalist ends up with 20 percent of all profits. Occasionally, there may be some deviation from the 20 percent figure, but this is rare. One thing to look for is whether the fund looks at the profits of the fund as a whole or on the profits from each individual investment. If the former, there’s often a “clawback,” so that if an early portfolio company has a home run but all the rest are losers, you’ll be able to take back the excess profits that are distributed to the venture capitalist. Reinvestment rights are the right of your venture capitalist to take profits from early successes and reinvest them into new investments rather than pay them out to you and the other limited partners. This may be a good thing for you because it means you have more capital at work and, in a sense, this is free to you since the management fee doesn’t apply to reinvested money. On the other hand, it may be a good idea to take some money off the table. Some form of reinvestment right, at least for the first few years, is relatively common. Just make sure you understand what it means to you. The next part of this series will look in detail at angel investing and its important characteristics, including typical legal and business terms.
As we end the year, the Eurozone debt crisis has taken centre stage. Even for the most hardened technical trader it has been difficult to ignore the fundamental noise emanating from Brussels.
This reached fever pitch after the EU summit on 8-9 December was deemed a massive failure. So as we enter a New Year, traders who want to keep their profits need to get used to fusing fundamental and technical analysis when they trade the markets.
This is fundo-technical analysis in action, which makes up the basis of my philosophy for analysing markets: fundamentals determine the medium-term trend, while the technicals point to shorter-term price movements. For most retail FX traders it’s the short-term movements where you make or lose money. Thus, although you may know all about the weak outlook for the currency bloc and the fact that Italian bond yields are surging this means nothing to you because you can’t make profits from this information alone.
Hence the question on every good trader’s lips is “what now?” Since we are at such an important level for EURUSD I have decided to look at point and figure charts to see if there are any key support levels that jump out at me. I like using point and figure when we get below these key levels because it strips out the noise in the market. Usually around big moves prices can become sticky as traders get nervous about breaching such a key support zone. Thus, prices can move up and done like a yo-yo and you risk firstly losing your nerve that you made the right trade and secondly, getting taken out by the whipsaw price action.
So, if you think that EURUSD is going lower then point and figure (“P&F”) charts are a good way to pick significant support and resistance levels since P&F charts strip out time – they only show you price. As you can see in the chart below, the next key level to watch is 1.2900, below here opens the way to 1.2600 and then we are back to the sub-1.20 lows from the peak of the Greek crisis back in mid-2010.
So what are the future fundamental and technical risks that could impact the currency’s movement from here?
Looking at the fundamental factors first, Italy has EUR 112 billion of debt to auction in the first three months of next year, the EU authorities have so far failed to come up with more money for the bailout fund and the currency bloc is expected to experience a mild recession in the first six months of 2012. So from a fundamental standpoint the outlook is fairly gloomy.
But what does the euro’s technical history tell us about where the pair might go? On a very long –term basis the euro is actually fairly strong within its range. Back in 2001 EURUSD was trading at 0.85. But since 2002 (with a little help from global central banks to get going) the euro has been on a long-term up-trend. In the medium-term after peaking at 1.60 in 2008, the pair has been stuck in a range between 1.50 to 1.19 – the July 2010 low.
The break below 1.30 is significant not just because it is one of the lowest levels in this pair for nearly a year, but also because it opens the way to 1.20. This is a level that hasn’t been convincingly breached since 2005. When it broke below 1.20 back in July 2010 it didn’t last long and the single currency soon bounced back. This is a major support level and it also coincides with the 200-week moving average.
So, if we are to see EURUSD fall below this level then something serious is going on. Perhaps a failed Italian debt auction, a disorderly Greek default or even a break-up for the currency bloc could be triggers. While all of these events are possible no one can predict with any certainty when they might happen. Also, because they would also be first-time-ever type of events then it is difficult to know how to price in the probability of them happening with any type of accuracy.
Interestingly, the average EURUSD rate since 2000 is 1.2425, according to Bloomberg data. And in the current environment where the politicians seem to have the will to save the Eurozone although they lack the way out of this crisis, we could see this pair meander back to the mid-1.20’s over the next few months if sentiment does not change.
But we can’t forget that the euro is a strange currency, it can prove very resilient and in recent months it has not declined in a straight line. So traders beware. All of the fundamental and technical analysis in the world can’t protect you from unusual moves in the market and if you trade euro then your trading plan needs some contingency built into it to account for central bank and petro-dollar reserve diversification, which tends to be euro positive.
So traders, if you are hooked on the news coming out of Europe and think it will end badly, don’t think the euro will follow suit. Short-termism is the name of the game when it comes to the single currency and it could be more like death from a thousand cuts than an outright collapse.
Investment is one of the crucial decisions to make, whether
for personal or business purposes. There are many things to consider before you
make it, especially if your company will benefit from it. One of the best ways
that those companies do is invest in dividend stocks. But you need to have more
information about this matter. You need to make sure that it can be a big help
to your company, especially if you are a beginner.
Dividend stocks are an extra payment, which is made in
additional shares rather than a payment of cash. Thru this, you can generate your
income, and it will help you grow your savings collection for long years. This
is a big help to increase the share of your company regularly.
Why should you invest
in Dividend Stocks?
Investment is essential when you decided to make the right decision. If you are in the field of business, you need to be wiser enough so that you are assured that it will grow and it will be a big help to your business.
Things will be easier if you have enough knowledge about dividend stocks. It is also helpful if you are guided by those who are expert in this field. Here are some of the reasons why you should invest in dividend stocks.
Dividend stocks will produce consistent income streams, and it has the potential for outstanding and longstanding compound returns.
Thru this, you can pay shares to stockholders, reinvest in the business, or buy back your stock. Reinvesting is essential for the growth of your business, and at the same time, it can help to maintain a competitive benefit.
As a beginner, you need to have enough reason before you decide to invest in one thing. You need to consider your company. Make sure that you will get a significant advantage in the investment that you are going to do.
If you are one of the beginners in this field, then you
should remember some of the important dates for dividend stocks. You need to be
aware of this date because it will help you to determine if you will receive
the stocks on the next payment of dividend.
The pay date is the day when you need to pay the dividend to the shareholders.
Record date occurs in two business days after the date of ex-dividend. In this date, you will determine if you already get the dividend.
The ex-dividend date is the first day of the trades of stocks without the dividend. When you purchase a shares before the date of ex-dividend, then you are entitled to the payment of dividend, but when you purchase after the date, then you are not going to pay on the cycle of dividend.
Settlement date occurs in three business days after the date of the trade. It represents that the purchase is being finalized and you will have the record of the shareholder in the book of the company.
The date of trade refers to the day when you purchase the stock.
The given important dates about will provide you with an
assurance that you have to undergo the process of dividend stock. It would help
if you remembered those dates for you to be guided appropriately by your
Dividend Stock for Beginners
Dividend stock is one of the recommended investments for
beginners. This will give them a great advantage that will assure them that
they have made the right decision. Here are the benefits of choosing dividend
stock for beginners.
The track of growth record because dividend stock will assure you to have consistent growth to your business or income. The good traits that these investments have will ensure that this is the right thing to do.
When you are a beginner, you are aiming to have a good growth to your investment. You don’t also want to fall by a lower amount. In dividend stock, you will have low instability.
If you are in a company, you aim to have continues good record. This investment will help you with that goal because of the sustainability traits that it has. It will provide you a firm track record about the payments of dividend.
Consistency is one of the excellent characteristics that this dividend stock has. Thru this, you are assured that the growth of income to your company will be achieved.
Things to know in Dividend Stocks
Beginners should have some critical information that will
help them understand the investment that they are in. It is essential that you
are knowledgeable enough about the dividend stock to make it successful. The
following information will serve as your guide to do the right thing in the
field of investment.
Dividend stock is not only about income. Beginners should know the importance of dividend income trap, which is referred to stocks with remarkably high shares.
You need to know if you will get paid. Your brokerage account probably has several dates, and you need to pay attention to this detail. This will give you awareness about the process of payment.
It would be best if you also enrolled dividend stocks in a DRIP (Dividend Reinvestment Plan) for the all-out prospective.
The investment will not be possible if you will not become
wiser in choosing the right choice. You need to have enough information before
you go for investment, especially when you are a beginner. There are many
things to consider for it to be successful. The given information above will
help you a lot, and you will be assured that you have made the right decision.
Dividend stock will assure you that you are on the right
track. This is the best investment that you are going to make for your company.
You will never regret choosing this because it is proven and tested for many
years. Do not hesitate to trust this because the information given to you is
reliable and proven.
Picking the right stock is a crucial step when it comes to investing in the stock market. The stock you invest in will determine whether you are going to gain or lose money in the future. Sometimes, a stock might seem the perfect one at a particular moment, but it turns out to be a loser in the new few weeks or year. Alternatively, maybe you didn’t put high hopes and a lot of interest in a specific stock, but you end up regretting it when it turns out to be a winner stock.
The stock market has never been a game of luck and will never be. To make the best out of the stock market, you need to adopt an excellent investment strategy, which involves picking the right stock at the right time that will help you generate high profits in the future. If you are a stock investor, or just getting started in the stock market and want to know how to pick the right stock, you can start with this guide. You will find all the dos and don’ts when choosing a stock.
What to Do When Choosing a Stock
Buy what you know
As a general rule, it
is very beneficial to start with a company or industry you are familiar with,
for many reasons. The more you know about a particular company or industry, the
more your head is in the game. For instance, if you are in the medical field,
you will more likely have a better idea which pharmaceutical companies are on
top of the industry and how effective they are in terms of customer service and
sales. Also, bear in mind that any nonpublic information you receive in an
official capacity might be considered insider information. But still, any
public information that is not widely spread can give you a significant
On the other hand,
make sure to avoid the hype because you might end up losing money when these
emerging companies turn out to be losers. Many investors fall into the trap of
buying a stock that they don’t fully understand, and just because a particular
industry went viral at that time, which might not last for long periods.
Consider price and valuation
Expert investors often look for individual stocks that are “undervalued” or “cheap.” This generally means that the different investors are paying a fairly low price for every dollar a company earns. It is measured by the price-to-earnings ratio (P/E) of a stock price. (it is the share price of a company divided by its net income). When comparing the P/E ratio results, a stock price is considered cheap when it is below 15 and expensive when it is above 20. But still, there is more to consider:
Expensive doesn’t necessarily mean bad, and cheap doesn’t necessarily mean good. Sometimes, the reason behind the low price of a stock is that the company is slowing down or growing less. Alternatively, a stock is expensive sometimes because it is predicted that the company is going to overgrow in the coming few years. So, if you want to buy a stock that will more likely be worth a lot later, look at the value combined with predictions for future earnings.
Know your stock. Generally, a company that is expected to grow significantly and rapidly in the near future will more likely be more expensive than an established company with a slower growth rate. Before locking your choice, make sure to compare the P/E ratio of a particular company with the P/E ratio its competitors of the same industry and check whether it is more expensive or cheaper than its peers.
Analyze the financial health
It is essential to
have an in-depth analysis of the financial reports of a particular company you
are interested in. Besides, it is easy to find these reports since most of the
public companies tend to release them quarterly and annually. Make sure to
check the Investor Relations section in the company’s website, or look for
official reports listed in the SEC online. To make your research even more efficient,
don’t just focus on the most recent releases. Instead, put more emphasis on a
solid track record with a consistent history of financial health and profitability,
for long periods.
Look for revenue growth. Stock prices tend to significantly increase when companies are generating more money in the long term, which typically begins with growing revenue. Analysts usually refer to revenue as the “top line.”
Check profit margin. The profit margin of a company is the difference between its revenue and expenses. Generally, a company tends to expand its margins when it is growing revenue while successfully controlling costs.
Get to know how much debt the company has. To do so, make sure to check the balance sheet of the company. A company with more debt generally have a more volatile share price because more of its income has to go to the debt payments and interest. Also, check whether a company is borrowing an unusual amount of money from its group peers for its industry. That would positively affect its price share in the short and long-term.
Find a dividend. A dividend is an amount of money paid regularly by a company to its shareholders, and it is a sign that a company is in an excellent financial health. Make sure to look at the history of their dividend payments, whether they are increasing or not.
What NOT to Do When Choosing a Stock:
Don’t rely on price alone. Just because the price of a stock has dipped 10%, doesn’t mean that it is a bargain and you should buy it right away. It is very important to know the reasons behind its fallout and have a better understanding it is going to rebound.
Don’t count a lot on analyst recommendations. It is always a good idea to listen to the experts’ advice. They can provide you with valuable information about the health of the business. However, be cautious that they tend to favor ‘buy’ ratings. That is why a sell rating, especially a new one, might be a red flag from an analyst perspective. You should always keep an open eye on those calls
Don’t neglect the stocks’ volatility. Compared to a diversified mutual fund, an individual stock tends to be more volatile. So, make sure to check the stock’ highs and low within every week of the year to have a better idea of how the prices swing all year round.
Don’t forget to sell. You should always have a solid strategy when investing in stocks. You need to know when to buy a particular stock as well as when to sell it. To do so, make sure to set some criteria to know when is the right time to sell that stock: if the price goes high or down to a certain point if the particular company cuts its dividend, if an analyst depreciates the stock, etc. This will undoubtedly help you better manage your stocks and avoid rushing to selling over a short-term fluctuation in the market. When following these criteria, you increase your chances of success and minimize the risk of losing your stocks during unexpected events.