IPOs is in the buzz again as record number of firms are lined up to mop up thousands of crores due to the abundance of liquidity in market.
However, SMEs often get lagged behind when it comes to tapping capital markets to raise fund and chase growth.
Malaysia-based Fatanah Venture Berhad looks at training established entrepreneurs and CXOs towards making their organisation listed at stock bourses.
Dr Jeh Shyan Wong, Co-founder and CEO at Fatanah Venture Berhad spoke to The SME India and walked down through how SMEs can tap IPOs, what are the key drivers and challenges among other points.
Q. How has the journey been in training entrepreneurs about investments and IPOs?
Rather than being in the training community, I was in the investment community. Initially, I concentrated primarily on technology companies. I realised that if I invest in a tech firm and they fail, I will lose everything, so I decided to look at traditional firms like transportation, food manufacturing, pastries, and cakes, which helped me a lot because now I’m trying to make traditional firms into something that is contemporary and forward-looking.
I discovered that the majority of the businesses are viable, but they are not bankable because no one was willing to invest in them. So, how can we make a small business investment-grade? As a result, we discovered that many people have no idea how to accept new shareholders, the documentation procedure, or how to set up a corporation that can accept public or a large number of shares. As a result, we are all constrained, and to make matters worse, many businesses, including myself, have founded businesses without ever reading the Companies Act. Instead of using equity finance, we are overly reliant on loans, overdrafts, and borrowing money.
We invest in a company without considering its history. We’re looking at your current situation as well as the future. While the past does not guarantee how the company will do in the future, we can easily assess the possibility for you to be monetized in the future.
As a result, most venture capital such as ourselves or private equity investors, are willing to consider the concept of post-money valuation, which refers to the value chains established after an investment. So, rather than the inverse, we’re looking into your future potential as a firm, which has changed the entire picture. So now I see that in order for me to get the SME into that bankability stage, I need to train them, and if I don’t teach them, I’m going to have an issue.
I was in Singapore at the time and was in the business of investing, and it’s been a disaster because our success rate was really only 1 in 20. Assume we invest in 20 enterprises, 19 of which will fail, therefore in order to ensure their survival, we train them properly, teaching them how to undertake financial control and pay dividends. How to perform a merger and acquisition using an all-share agreement vs a package deal for shares and so on, and then my success rate went up a little to one in sixteen, but they were still bad since you invested in 16 firms, and 15 of them failed.
Then I understood that in order for us to remain competitive in the Venture Capital industry, we needed to do something different. We need to take a more strategic approach, and we’re looking at the Capital as a starting point. As a result, we created the Magic of Capital (MOC) programme. Why do we refer to ourselves as capital creators? Anything that defies logic is known as a miracle. Many things in the world capital do not follow your typical reasoning. As a result of our training, we discovered that the success rate had increased by one in six. Okay, so five can fail, but that’s the best you can do since businesses are all about risk. How can we detect the risk and then choose on the risk? So that’s what we believe, and in the capitalist world, knowledge is free but wisdom is costly, but we wanted unorthodox wisdom, so that’s where we come from.
Q. What precisely is the MOC programme, and how many entrepreneurs have been trained to date?
We need to transform the entrepreneur, not as a trainer, but as a bankable person with a new perspective, but we don’t have a lot of time. We are given a very limited amount of time to challenge their thinking for which we provide variety of scenarios to choose from which allows you to have a different point of view than the subject. After that, we’ll go through the second phase of capital growth exponentially.
Q. How many business owners have you dealt with so far?
We started with 4,000 Chinese business owners. We’ve trained 6000 entrepreneurs from over 15 nations in total. I spent a significant amount of time in Poland, South Africa, and India. I did spend some time in Pakistan and subsequently in Indonesia. Malaysia, Singapore Thailand Apart from China, there are Vietnam, Cambodia, Brunei, and Taiwan, as well as Japan.
Q. You stated that you have trained about 6,000 people all across the world. So, how many of them have been listed on various stock exchanges? .
Wong – We started with 35 firms, and I was one of them, but I’ve never done unicorn before. So I’m looking for my unicorn, which is extremely elusive. Many individuals become distracted when they’re on their way to an IPO, which is why I failed. I’m hoping that in the next four or five years, at the very least, I’ll have realised my dream of churning out a unicorn.
Q. How do you deal with concerns over M&A aspects of your clientele?
Those who can’t accept other shareholders won’t be able to go public, but the process isn’t about removing shares; it’s about diluting. Assume you have a total of three thousand shareholders. I believe it will be difficult for 3,000 men to unify against you, so we have work on the exponential mind-set. When you look at somebody like Bill Gates, who hold more than 1.2 percent of Microsoft, you can see how powerful they are. Jack Ma, who owns 7% of Alibaba, has become the richest man in the world, owning 100% of a firm while remaining a nobody.
Another mentality to consider is whether we should hire people smarter than us to make money for us or people stupid than us. So most of us believe we are smarter, which is a terrible tendency because we should, by right, be hiring everyone smarter than us to work for us. So, when we train a company to become bankable, these are the issues we must address? Otherwise, it will always be a smaller corporation, and it takes a long time to change people’s perceptions, but once you’ve done it, you’re likely to have a very strong IPO company. As a result, that’s what we do.
Q. How do valuations play a role?
There is no valuation when no one invests in your company. Every time a venture capitalist invests, a new valuation or benchmark is formed, resulting in exponential growth valuations climb up every round, as you have series A, B, C, and D rounds of funding, and every time they come in, we have this amazing growth in wealth.
Q. What are your thoughts on India’s SME sector, and what potential do you see here?
Because there are both haves and have-nots in India, the collective momentum is enormous. The unbanked are being banked, while the have-nots are being introduced to technology. You don’t need the entire country to thrive in India; merely a few significant cities can accomplish it.
I’d like to have a proper portfolio in India, and I’m fine with having 20 to 30 good firms so that we may have a decent opportunity of building proper IPOs and unicorns. We believe that the growth rate will be approximately 8% to 12% for chosen sectors such as banking and consumer lifestyle, which are the things we’ll be looking at.
Q. What specifically do you cover in your EXO programmes for entrepreneurs?
Initially We performed it for twenty-eight nights over the course of two and a half months, and we learned that the People require time to bond. People must not only consume the information, but they must also create their networks. So, similar to that university, having students in the same class for a long time is a good idea. If we take a three-day course, we make a lot of friends, but the bonding isn’t there. If we go to the University’s campus, we meet alumni and fraternities, and we feel the bonding is there, so we realise that anything longer than four months will create a better bonding than a three-day, four-day, or eight-day event. This is the first time we’ve done something like this. This will start from the first week of September.