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Is Your Business Prepared? Knowing The Dangers And Opportunities Of International Investments

From October 3–7, 2016, the Financial Executives Institute of the Philippines (FINEX) held its annual conference with the subject “Reshaping the Future through Transformational Change.” Numerous conferences were held during FINEX WEEK, one of which focused on the subject of this article and was noted above.

“Is your business prepared? Understanding Global Investment Opportunities and Risks” is a topic that covers such a wide range of topics from so many different perspectives that it is quite challenging to keep the reader interested in the topic. Foreign investments investing locally? Local tax structures against foreign tax structures, local company laws versus foreign corporation laws, and other regulatory frameworks are examples of the differences between risks that are local and external. There are several possibilities that might quickly make the goal opaque.

For the sake of relevance, this article will only discuss investments that are made domestically or within the country, as these always boost the local economy more than they do the global one. The majority of ultra-large corporations have traditionally been more involved with and will continue to benefit from inbound investments than companies making outside investments.

A single focus on inward and local investments also creates a bit of a challenge in producing a draught that, if thorough, can span several pages. This presents a challenge in understanding the investment structure and dynamics. The final goal of this paper is to provide a succinct summary of the dynamics.

The athletes

Investors can be found at various phases of your business and in a variety of shapes and sizes. Angel investors typically make investments when a firm requires “seed money” to launch its operations. Typically, an angel investor will make an equity investment like this after deciding to take a chance on the possibility that the new business may succeed. When there is already proof of concept and a clear favorable market response to the good or service, venture capital firms propose a strategy where they invest at a later stage than what angel investors take. Private equity firms (PE firms) enter the picture much later, once the company has a medium- to the long-term track record of consistent revenue generation and profit margins. The third category of investors would be foreign firms that enter the nation and create reliable business alliances with national organizations.

The method

Before deciding to sit down and conduct negotiations, investors normally need to review two key documents. The Information Memorandum must include extensive information about the company, including details about its operations, products, target markets, competitive advantage, management caliber, shareholder profiles, and historical financial performance, including explanations of why revenues and profits fluctuated and debt levels among other things, business plans, and medium-term growth strategy. The Financial Model is the next step, and it must present historical financial statements along with medium-term projections (for the next 5 to 7 years). It must also outline the model’s underlying assumptions and provide connections to the data in each cell of the Excel spreadsheet.

The investor should be able to determine the company’s financial worth after the submission by performing a valuation. The investor will next submit his valuation and the additional parameters he would provide to go along with the financial investment. The Non-binding Term Sheet is a document in which the investor will outline the terms and the amount of his appraisal. This term sheet must be approved by the appropriate corporate body, often the board of directors and possibly the shareholders (should the by-laws of the company require the approval of the latter).