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The evolution of an alternate asset class…

Is there more head room for “Democratisation of funding”? 

Would the current/ changing market conditions provide the right impetus for it to transform and evolve as an alternate asset class?

As a serial investor, I weigh options to invest in various asset classes from time to time. Over the last few weeks I have come across an opportunity to invest in airport parking spaces in Glasgow. The opportunity required me to buy (125 year lease) and subsequently let out the parking space to the parent company (on a six year fully managed contract) providing a guaranteed up-front net return of 8% for the first two years and forecasted to increase by 2% every 2 years. The parent company, in my view, has deployed a sane strategy providing decent returns to its customers, while securing its cash flow of ~£60 M to be invested in future expansion.

As a management consultant, my day job entails identifying opportunities for performance improvement (top/bottom line) of various organisations, spanning their IT and operations. There have been numerous occasions where despite a convincing IRR and discounted payback, capital injunction for these improvement opportunities, in a cash-stripped ecosystem, has been hard to come by/ limited. As a result, businesses tend to lose out owing to what I call the “cost of do little”, until such time all the identified initiatives have been successfully deployed, over multiple years.

Democratisation of funding has evolved over the years attracting many types of players, predominantly targeted towards the start-ups. However, as any supply and demand equation will have it, in my view, it is only a matter of time before these funding initiatives/ players find their way to invest in organisational improvement initiatives (e.g. operational efficiency improvements) providing the necessary capital injunction. We see traits of these already happening in the market with “value based pricing”/ “risk and reward” type of commercial terms executed between organisations and strategic suppliers. But this to-be-evolved model is a beast in its own right. There are a plethora of stumbling blocks in this road to realising this vision, a sample of these listed below. In no particular order,

  • The sentiment of the investors in funding a untried model of asset class;
  • The risk the organisation carries in exposing its various initiatives to the open market/ competition;
  • The legal costs of executing such agreements and their impact on the projected IRRs;
  • Regulatory and compliance norms;
  • Clearly defined KPIs defining the success of such initiatives; and
  • Liability clauses should the initiatives fail.

This asset class, if successfully proven, may not necessarily provide the type of 20X (high end) returns that I, as an angel, would like to have. However, it will provide me:

  • An opportunity to some of the strategic initiatives undertaken by big firms;
  • Improve my knowledge on “how it is made?” on some of the fantastic companies globally;
  • Diversify my investments into helping renowned businesses improve their performance; and
  • Potentially offer me returns higher than traditional investment opportunities.

 The test of time awaits don’t you think?

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