Posted tagged ‘capital’

Aquaculture Myths That Constrain Investment (Part II)

November 20, 2011
I’ve been awfully remiss the past couple of weeks in keeping up the blog. Been  immersed in activity and conversations that, I promise, will serve as grist for constructive information sharing in the growing Aquaculture Means Business community.  As part of the continuing topic “Aquaculture Myths That Constrain Investment”, my work has been done for my by Gareth Lott,  founder and CEO of Australia-based Aquanue, who has kindly contributed the following:
 
Aquaculture Investor-Ready 101

As an Aquapreneur looking for investment into a large aquaculture project, the biggest myth I’ve encountered is that all aquaculture is equal.  Investors have heard about other investors who have lost money on aquaculture, and they assume that every venture is the same.

That’s like saying that because some people have lost money on mining, all mining investment opportunities should be avoided.  Too many would-be aquapreneurs don’t know nearly enough about the business side of their proposed venture, and worse – they don’t understand why investors invest!

The investment sector folks need to take a course in  “Aquaculture Enterprise 101”.   But equally, aquaculture operators need to take “Investor-Ready 101”.

Investors don’t put their money, or the money of the funds they represent, into ventures that don’t tick all the boxes. Knowing how to grow fish and having a few people on the team that have worked in aquaculture before is not enough – by any stretch.

Until people trying to secure investors into their aquaculture venture address the full list of criteria that today’s investors are looking for, they will struggle to find third-party money, and the industry will struggle to shake off its amateur profile.

Investors want:

  1. An exit strategy.  “Oh, we’ll just keep growing fish” is NOT an exit strategy.  “Oh, we’ll make 10% profit” is NOT an exit strategy.  Unless you have a track record of developing and selling profitable businesses, if you can’t clearly articulate how and when the investor is going to make their profit, you’ll find it very hard to convince them that they should invest;
  2. An extraordinary entrepreneur with unique insight – including the extraordinary drive, energy, passion, and commitment to take on the tough task of starting a company, and the ability to attract a first class team;
  3. They want to see momentum, or ‘traction’ as they call it.  The group of investors who put money into ventures that have no operating history is very small.  This can be overcome, in SOME cases, by the strength and experience of the management group, or being able to show a history of past activities/businesses where investors made good money;
  4. They want to see that the operator has a deep understanding of the market – including being shown that there extreme pain being felt by an individual or group and people with this pain/motivation to build a large business;
  5. They want to see that the product adequately addresses the need (without introducing new problems in the supply chain);
  6. They want to see that there long-term sustainable differentiation and barriers to entry for potential competitors, and that the differentiation between your product and the status quo is strong enough to beat any potential major competitors whose size, distribution, customer base, and credibility, would give them an immediate unfair advantage if they decided to compete, even with an inferior product. Investors want to invest in businesses that have some unique advantage, whether it’s patented IP, trade secrets or team members with unique abilities and knowledge that no one else can easily replicate;
  7. They want to see that the operator can build a viable business model around the solution.  Knowing how to grow fish does NOT convince an investor that the operator knows how to build a business.  Just look at most tradespeople in the market today who think that because they can lay bricks or install plumbing they can operate a business properly;
  8. They want to see a great management team – which is far more than just a competent aquaculture operations staff list.  ‘A’ players attract other ‘A’ players. ‘B’ players attract ‘C’ players. Therefore the starting team should ideally be all ‘A’ players;
  9. They want to see that the company can be built in a capital-efficient way.  With lower exit valuations these days, the one reliable way to ensure both the entrepreneur and investor will end up with a good return is to build the business using a small amount of capital;
  10. They want to see that the operator and his/her management team understands ALL the relevant issues.  Aquapreneurs are often by nature very passionate about their particular system or species, which, in itself, is a good thing — but investors know that unfortunately that passion often blinds the operator to other important issues. Like the real risks.
  11. They want to see businesses that have identified the range of risks that come with the opportunity – and that the assessment of the risks has been done with integrity.  “We’ll handle that one when we come to it” is NOT a risk-management strategy, nor is “It has never happened before”.

Aquaculture might be the art of growing fish, but making it attractive and compelling to investors requires much more – it needs to be a complete business package, with an exit strategy, and it has to make sense to people who each year see dozens, if not hundreds, of investment opportunities.


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