This week has been quite exhaustive. On Monday's morning, just before I depart Hong Kong, I was invited to meet with the management of this almost 2 years old Chinese Company, it's business is growing specialty (they called “biological") trees and shrubs on forestry land. They were ambitiously seeking to raise US$77M to execute their business plan. The Company's principal, her friends and associates have placed US$18M in this company. The executives shared that about 6 months ago, they got an offer from an Australian investment group of RMB100M for a 20% stake of the company – this means they gave a valuation of the low US$70M for this company back then. The principal and her team did not think that was a reasonable deal and they turned it down.
Unfortunately, due to the credit crisis, the company is now anxious to get some bridge financing to keep its operation going. The principal was trying hard to showcase how a US$10M bridge loan can yield a very safe and attractive return for the potential lender. One of the Company's target investors was my friend, who had just landed in Hong Kong the previous night. I could tell that he was definitely not jetlagged. He was very sharp and kept asking me what I felt about the deal – he was constantly challenging the group, while they were trying to convince him that their suggested offering was a good and safe deal. Even though it may have seemed like a very safe deal even just months ago, in this current financing environment, everything seems riskier and there are many “safe" deals competing for the same investment dollar. I was sitting in the middle of this calm storm and felt bad knowing that the company is in a pretty vulnerable position if funding cannot come in fairly soon. Not only would the company be unable to execute its business plan and move to the production stage, it might even expose itself to potential financial distress.
In Vancouver this Thursday, before I flew to New York, I met up with my friend and caught up with his latest participation in backing a Mexican gold & silver venture. They are in the midst of closing a joint venture deal with a US$4M investment into this Canadian listed company that owns gold & silver properties in Mexico. The company was initially seeking to raise US$6M. His shrewd counter-offer was 65% of the asked-for investment and the company was delighted to accept. Their deal is almost final, due diligence has been done and it's just pending regulatory approval.
Thinking of the other deal and this situation, the difference is that it's always the investor that dictates the terms - especially in this current economic and financial market. The new “Golden Rule" is definitely, "The one who has the gold gets to make the rules", and this is definitely so true in this current financial environment. It is so hard to imagine that the current financial crisis wiped out over US$7 trillion of stock market gains, and the Dow Jones Industrial Average is at the same level it was in 1997.
Funding can bring life or lack of it can induce poison to a Company's livelihood.
This confirms my firm belief that the best time to ask for money is "when you don't need the money"....
We always hear the saying that "Cash is King". Actually, I would say that "Cash is an Oxygen Mask" or "Cash is A LifeJacket". Maybe this is more appropriate?