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The new investors

With the economic recovery, there are a growing number of investors looking for places to put their cash. So what type of buying opportunities are they looking for, and how are they feeling about the future? Reuben Buchanan, co-founder and publisher of Wholesale Investor, joins Peter Switzer to discuss investor sentiment and intentions.

Investment history

Reuben has been in the investment world for a long time. Before starting a magazine called Wealth Creator in 2002, he was involved in investing in property and the stock market and educating people how to invest on the stock market as well. He realised at the time there was no magazine about wealth creation and so began the magazine and sold the business three years later.

“What I did do over that period of time was meet a lot of entrepreneurs, a lot of high net worth individuals, a lot of people who were on the rich list and that inspired me to get out and do something else,” he says. “So after I sold it in 2005, I got involved in capital raising and helping companies to either raise capital, reduce their debt, de-risk the business, become investor ready, sell the value at the highest price, maybe even sell the business.

“What I identified through that process of helping other companies is that it’s very difficult for companies who are raising capital to find investors, and its hard for the investors to find the companies.”

A new venture

Buchanan decided to launch another publication about a year ago, “but really it’s a platform that connects investors with opportunities.”

He says there are around 40 venture capital firms in Australia and less than 200 private equity firms that manage about 25 billion dollars. But for businesses in the early years of growth, Buchanan says they’re likely to find funding through private investors.

“That’s what I’ve found in the last three years working with companies, helping them to raise capital,” he say. “It’s the private individuals, and some of these are high net worth. Some of them have more money than venture capital firms or even some of them have more money than private equity firms.”

A lot of the private investors are people who have perhaps floated their company or sold their business.

Buchanan says a lot of them who have made a lot of money still have “the entrepreneurial spirit inside them” and want to invest a portion of their money.

“[They want to] go out there and find some companies that have got some future growth prospects, but not just invest, they actually want to get actively involved, go on the board, and help the business grow and potentially, maybe even float the company and do what they did, which is how they made their wealth,” he says.

Buchanan identifies Domenic Carosa, who is a director at Wealth Creator, as one of these types of people.

“If I’m an entrepreneur and I’ve got a start-up online type business and I’m starting to get some traction, getting someone like Dom on board, even if the valuation’s a lot lower, having him on my board brings credibility, it brings networks, it brings money and it could get me to places I could maybe never go to if I was just out there trying to do it by myself,” says Buchanan.

Public and private

Buchanan says there's a “strong relationship between the value of public companies and private companies” in that as the value of public companies fell, so did the value of private companies.

Wholesale Investor recently surveyed their database of 4200 wholesale investors.

“Investors who are interested in the private space probably want to invest quite a significant amount of their portfolio over the next 12 months,” says Buchanan. “And even since we’ve done these two surveys, we did one in May and we did one that just came out today, we’ve seen the amount of money they’ve got in cash actually drop by about 25 per cent. So they’re actually actively putting money into deals as we speak.”

Buchanan says many companies that are looking to raise capital might be thinking of waiting until the market recovers before making their move, but he believes this is the “wrong way to think.”

“The investors are wanting to invest right now, and now is time to go out there and put your deal on the market place and get in front of investors, whilst they’ve got cash, before they spend it all,” he says.

Pros and cons

So what are the pros and cons of investing with a private company?

“There’s obviously negatives of investing with private companies, one of them being liquidity and transparency,” he says adding that one of the benefits is a private company won’t have a lot of debt because the banks won’t lend them as much money as a public company.

“And also if there’s a hick up within the private company, it doesn’t get kicked around on the public market…The management isn’t under scrutiny daily, so there’s lots of other benefits of being a private company,” he say.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

 

Published on: Sunday, August 16, 2009

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