A new normal?
As we adjust to the norms of this covid-hit world, some norms, however, remain the same….risk and return. Some time ago, I was invited to invest in an opportunity on the investment thesis that the entry price was very attractive. It was a 50% discount to the last round. However, on closer analysis, the last round was held in November 2019, clearly before the covid virus ravaged the world. So 50% of that valuation may not even reflect the current valuation, let alone a discount. How much should it be now?
Pandemic and Valuations
Well, as usual, that would depend on demand and supply ultimately and while supply may be limited, demand can be varied, depending on one’s perception of risk and reward. When does one expect that a safe and effective vaccine be available globally? How would the business model be affected post pandemic?
Notwithstanding this, i also had issue with the structure. The shares offered are vendor shares (nothing wrong with this) and would be ‘managed’ in a SPV by another shareholder who happens to be a fund manager. Fees and Carry would be payable.
Prima facie, there is nothing wrong with that except that the risk-return profile would be skewed as the shareholder/fund manager would also have their own pot of shares to be managed and conflict of interest may set in. When the going gets tough, desperate people will do desperate things and which set of shares would then be sacrificed for the ‘greater good’ ?
I have also seen good opportunities bite the dust because of indecision during this period. That would be a blog for another time….. till then, stay safe.
