INDEV308 Class 4 - Identifying Business Potential - Serge LeVert-Chiasson, Sarona

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Guest lecture on business modelling by Serge LeVert-Chiasson from Sarona Asset Management

http://www.socialentrepreneurship.ca/indev308

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INDEV308 Class 4 - Identifying Business Potential - Serge LeVert-Chiasson, Sarona

  1. 1. Assessing Business Potential By Serge LeVert-Chiasson, CFA, MSc, IMBA For the INDEV 308 Class Presented on May 30, 2011 110 -1B Frobisher Drive, Waterloo ON N2V 2G7, Canada | 1.519.883.7557 | sarona@saronafund.comThis is not a purchase offer, nor the solicitation of a purchase offer. Any such offer or solicitation will be made only by means of a final offering memorandum and only in those jurisdictions where permitted by law.
  2. 2. AGENDA Assessing Business Potential INDEV 308 – Monday, May 30th, 2011 1. Introduction to Sarona Asset Management 2. A bit about my role at Sarona 3. How do we assess investment opportunities? 4. Main takeaways for budding entrepreneurs 5. Two case studies: a) Agro Capital Management of Ukraine b) Mobile Transactions Zambia of Zambia2 Answer the questions at the bottom of the deck and you can win a prize! Confidential
  3. 3. SARONA ASSET MANAGEMENT In all we do, we strive for Excellence – Honesty – Integrity – Creativity Sarona has a 58 year history of investing in frontier markets around the world. Sarona is a private equity investor, seeking market rate returns. Sarona is an impact investor, believing our personal life values inform our business decisions. We believe that private equity firms that enact progressive business strategies in their portfolio companies will outperform their peers. Sarona invests in businesses that: • treat their suppliers, employees, and customers like their own families; • are environmental champions in their communities; and • are known as outstanding ethical leaders in their community and industry.3 Where does Sarona invest? Confidential
  4. 4. SARONA ASSET MANAGEMENT Adhere to ILPA Investors’ Council 1953 First Impact Investment in Sarona Dairies Leading to nearly 60 years’ experience principles 1968 First Microfinance Investment Key signatory Affiliated with: Strong presence in global industry associations 1995 Launched MEDA Access Fund Building upon values of Excellence and Integrity Access to top-tier managers and 1997 Launched Latin America Challenge Investment Fund investing alongside Strong third party supplier relations ensuring accountability international partners 1999 Launched Sarona Global Investment Fund Established brand as presenter to frontier PE and impact conferences 2004 Co-founded and Launched MicroVest I LP Expanding upon values of Honesty and Creativity 2007 Launched Sarona Risk Capital Fund I LP Known for strong governance and ethics within industry 2008 Launched MicroVest II LP All Funds under management outperforming targets in all markets 2010 Launched MicroVest Short Duration Fund – MV SDF I LP Partners have solid PE, investment and frontier market experience 2010 First Global Impact Fund of Funds – SFMF I LP SFMF I LP performing well since vintage year 20104 What is impact investing? Confidential
  5. 5. SARONA FRONTIER MARKETS FUND DIVERSIFICATION Agribusiness Portfolio Exposure by Sector ICT Portfolio Exposure by Region FMCG 1% 4% Clean Energy 2% 14% LAC 5% Financial Services 22% 27% 7% Light Manufacturing Africa 12% 10% Health South Asia 11% Education East Asia 10% 28% 24% 11% 11% Affordable Housing Eastern Europe & CIS Professional Services Sustainable Forestry Water India Portfolio Funds Avg Transaction Size Portfolio Exposure by Country Turkey Kenya Peru 23% 26% 23% Mexico 33% Less than US$5M Thailand US$5 to US$12.5M 3% 13% Indonesia US$12.5 to US$20M 3% 3% Morocco 44% 4% 10% Philippines 6% 9% Other (27 Countries)5 What are the advantages of diversification? Confidential
  6. 6. AGENDA Assessing Business Potential INDEV 308 – Monday, May 30th, 2011 1. Introduction to Sarona Asset Management 2. A bit about my role at Sarona 3. How do we assess investment opportunities? 4. Main takeaways for budding entrepreneurs 5. Two case studies: a) Agro Capital Management of Ukraine b) Mobile Transactions Zambia of Zambia6 Confidential
  7. 7. CHIEF INVESTMENT OFFICER Serge LeVert-Chiasson, CFA, MSc, IMBA Background: • CFA Charterholder, Masters of Science in Accounting / Finance from LSE, International MBA from Schulich Business School • Experience in private banking, international business, private equity, international lending and international a/r insurance • Travelled to over 50 countries / French, English, Spanish My role at Sarona: • Conduct due diligence and present investment proposals to board for funds under management • Monitor, add value and exit investments in portfolio • Create new funds and assist in capital raising • Participate in general office management as well as employee supervision, motivation and training • Develop processes, policies and procedures for improved productivity7 What does CFA and LSE stand for? Confidential
  8. 8. AGENDA Assessing Business Potential INDEV 308 – Monday, May 30th, 2011 1. Introduction to Sarona Asset Management 2. A bit about my role at Sarona 3. How do we assess investment opportunities? 4. Main takeaways for budding entrepreneurs 5. Two case studies: a) Agro Capital Management of Ukraine b) Mobile Transactions Zambia of Zambia8 Confidential
  9. 9. OUR INVESTMENT PROCESS Entire process can take four to eight weeks Review Assess Review First Desk Research Investment Impact Marketing Conference Thesis Strategy Material Call Minimum Focus on Deal size Investment Minimum Impact Terms and Sector or between $2- criteria IRR Target Strategy Conditions Geography 25M Review Legal and Track Review Fund Review GP Review GP Due Diligence Legal Record Model Financials Track record Form Documents Information Executive SWOT Risks & Identify Red Memo Summary Analysis Mitigants Flags Review of Meeting all Partners, Local IC On Site Due 2-5 day visit 2-8 pipeline Process and Managers HQ, offices members Diligence w/ 2 people visits Procedures and Staff visited visited Call 3-5 Call Call major Call industry Contact Third Party Reference Call Inter. IC committed auditors/ service / geography competitors References checks members investors lawyers providers experts if possible Terms and Country/ Major risks Investment Executive SWOT Manager Legal Conditions Sector and Memo Summary Analysis Review Review Review Analysis Mitigants Present the Key risks Make the Motion to Board Approval Investment and case approve Memo mitigants Implement Identify LP Side letter if Negotiations Board friendly necessary motion terms Use legal Sign Wire Legal, Execution & firm if subscription transfer Disbursement necessary agreement funds Quarterly & Attend Access Monitoring & Risk Contact with Visit local Share best- Report back Annual annual LP Sarona Mgmt team offices practices to our LPs reports meetings network9 How many major steps are there in the due diligence process? Confidential
  10. 10. AGENDA Assessing Business Potential INDEV 308 – Monday, May 30th, 2011 1. Introduction to Sarona Asset Management 2. A bit about my role at Sarona 3. How do we assess investment opportunities? 4. Main takeaways for budding entrepreneurs 5. Two case studies: a) Agro Capital Management of Ukraine b) Mobile Transactions Zambia of Zambia10 Confidential
  11. 11. ASSESSING BUSINESS POTENTIAL Product, Market, Process, People, Financials1. Product: Clearly define the need / gap your product or service seeks to fill. Focus and Consult2. Market: What market are you after? What competition do you face? Bowling Pin / Niche3. Operating Model: What is your business model? What partners do you need? Draw it and figure the problems4. People: Who do you need to successfully execute the business model? What skills are you missing? Hire5. Financials: Is the business sustainable? What are your assumptions? What financing will you need? Count11 Which of these categories is most important? Confidential
  12. 12. INVESTORS INVEST IN PEOPLE NOT IDEAS Lessons we’ve learned the hard way1. Great ideas + bad implementers = failure2. Poor ideas + great implementers = probable success3. Numbers do matter… Do the math. Is your business sustainable? Are your assumptions credible?4. Consult, consult, consult. Seek feedback from as many different points of view as possible. Listen to your critics.5. Pilot your idea and seek to learn from your early, lower risk mistakes. Seek realistic milestones and meet them.6. Finance yourself with people who will help you succeed7. Understand your risks and find ways to mitigate them8. Stop talking. Start doing.12 What distinguishes a social business from a regular business? Confidential
  13. 13. AGENDA Assessing Business Potential INDEV 308 – Monday, May 30th, 2011 1. Introduction to Sarona Asset Management 2. A bit about my role at Sarona 3. How do we assess investment opportunities? 4. Main takeaways for budding entrepreneurs 5. Two case studies: a) Agro Capital Management of Ukraine b) Mobile Transactions Zambia of Zambia13 Confidential
  14. 14. AGRO CAPITAL MANAGEMENT (ACM) ACM provides asset financing of agricultural packages to Ukrainian smallholder farmers to improve their farm incomes and works in partnership with technical assistance providers to ensure success ACM Sales leads model International MF CF + Qualitative Greenhouses Table Grape board Assessment of clients (GH) Packages (TGP) Target Partnering Clients: Experienced ACM staff Small-holder with local suppliers Cold Storage Agricultural farmers and Agri SME Units (CSU) Equipment & Machinery (AME) Innovative Partnering use of SMS with farming technology groups Flexible Strawberry Payments Package (SP)14 Why did we start a new company in Ukraine? Confidential
  15. 15. ACM CLIENTS Mr. Dilyaver Seythalilov purchased greenhouses and refrigeration equipment from ACM to grow his agribusiness. He was able to employ additional workers to work in the cold storage unit over the winter as well as grow his greenhouse space by 3,000 square meters. Mrs. Marina Kuzmenok is a local accountant in the village council of Saki, Crimea. She heard about ACM from the regional tax administrator and received a 0.1 hectare table grape package supplied by Agro Yukos, one of ACM’s suppliers. She has since convinced four of her neighbours to grow ACM table grapes Mr. Edem Mamutov is a local Tatar from the Prudovoe village near Simferopol. He was thinking about growing table grapes for a long time but did not have the financing. When he heard about ACM, he jumped at the opportunity. “The technical assistance I received from ACM was great as well as the speed and quality of service.” Mr. Aleksandr Sinenko lives in Kherson and manages a medium scale agribusiness that employs 80 permanent employees and 100 seasonal workers. With ACM’s financing for cold storage units and greenhouses, he was able to hire 3 more permanent employees and 30 more seasonal employees.15 Where in Ukraine is ACM active? Confidential
  16. 16. WHAT DID WE LEARN FROM ACM? ► ACM Sales Agent Model – First experience with fraud ► Death of the CEO had major effect on business ► Never underestimate time for greenfields ► The power of aligning interests with clear goals / cash ► Partnerships are built on trust, not contracts ► The importance boards with aligned interests ► Focusing on profitability too quickly may reduce your ability to mitigate certain risks ► Using old technologies in new ways reduces costs and improves business performance (SMS) ► The importance of excellent customer service in building a business - Word of mouth works!16 How many clients does ACM have today? Confidential
  17. 17. AGENDA Assessing Business Potential INDEV 308 – Monday, May 30th, 2011 1. Introduction to Sarona Asset Management 2. A bit about my role at Sarona 3. How do we assess investment opportunities? 4. Main takeaways for budding entrepreneurs 5. Two case studies: a) Agro Capital Management of Ukraine b) Mobile Transactions Zambia of Zambia17 Confidential
  18. 18. MOBILE TRANSACTIONS ZAMBIA (MTZ) Mobile Transactions Zambia provides low cost, safe, easy and convenient money transfer services to base of the pyramid clients in Zambia. It also offers innovative mobile payment solutions to corporations, governments and non profits who deal with clients in the informal economy.18 Is Zambia in East, South, West or North Africa? Confidential
  19. 19. MTZ – BUSINESS MODEL Sources Consumers Channels Sinks Corporations BC Banks Government UC Suppliers MFIs Cash Agents Utilities Donors UC MFIs NGOs Electronic UU Agents Value Creation: Legend: Mobile Transactions BC = Banked & Connected Mobile Networks UC = Unbanked & Connected Banks UU = Unbanked & Unconnected19 What does MTZ do differently from other mobile payment providers? Confidential
  20. 20. MTZ – IS THIS A SUSTAINABLE B-MODEL? Financial Summary $35,000,000 $30,000,000 $25,000,000 $20,000,000 TOTAL REVENUE $15,000,000 TOTAL GROSS PROFIT $10,000,000 TOTAL OPERATING EXPENSES $5,000,000 EBITDA EXCLUDING GRANTS $- NET INCOME $(5,000,000) 2010 2011 2012 2013 2014 2015 2016 2017 2018 $(10,000,000) $(15,000,000) Cash Flow 40000000 30000000 20000000 Total Change in Cash Position 10000000 CLOSING CASH BALANCE 0 -10000000 2010 2011 2012 2013 2014 2015 2016 2017 201820 In what year will MTZ start generating a positive net income? Confidential
  21. 21. WHO WINS THE PRIZE? Thanks for your attention! Question and Answers21 Confidential
  22. 22. 1.519.883.7557 110 -1B Frobisher Drive, Waterloo, ON, N2V 2G7, Canada saronafund.com sarona@saronafund.comThis is not an offering or the solicitation of an offer to purchase. Any such offer or solicitation will be made only by means of a final offering memorandum and only in those jurisdictions where permitted by law.

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