New Regime for hyper growth investment
As serial entrepreneur organization, TANAAKK found these truth in hyper growth investment
1
Hyper growth really do not need cash.
As a economic unit, hyper growth organization is too efficient to have debt nor equity toward growth. For example, hyper growth organization usually have over 100 % of ROE, that mean, they do not need much capital expenditure to get new recurring revenue. Usually hyper growth investment payback is within 6 months.
2
Keep away from R&D
There is trillions of dollars investment into Research and Development all over the world. The new invention should be new way for customer aquisition and new way to keep and upsell cusotmer. The essencial science is far beyond revenue. It is not the focus for hyper growth organizations.
3
never lose free cash flow.
After the company have >US1million of free cash flow per investment unit, typical organization burn that free cash into new investment and issue new equity or debt. But remember rule no.1. Real hyper growth organization do not need cash, if your business need brand-new cash, that business will be under threshold and no more investment should be done.
The power of free cash flow
There is only 60 companies in the world, that have >100Billion USD Net Income with >100 Billion Free Cash Flow ,>10% ROE.
The top 10 companies free cash flow is around 1 Trillion USD per year. Oil&Gas, Banking, Manufucturing, Retail, Media, Shipping, Energy, etc. Relative revenue growth percentage is not so high but these are the fundamental free cash growth organizations. The real hyper growth organization have nearly 3 billion USD new cash per day. Comparing 2022 global venture capital investment amount($209.4 billion by EY Report), These architype high cash organization have 5 times more cash and new market as compared to venture capital.
How should we behave in modern growth environment?
It is very sensitive to touch which investment for each company is good or bad though, I can only say keep eye to 10 Billion free cash flow market and there is some in 5 years. The point is ESG with cash burning not accepted, ESG with high ROE and rich free cash flow is only accepted. Same rule will be applied in any industry.