In their June 2010 book Capital Rising: How Capital Flows Are change Business Systems All Over the World, authors Peter Cohan and Srinivasa Rangan mine lessons from 47 case studies to “describe the phenomenon of capital flows, present new ways to think about what causes them to rise and fall, and describe ways that our readers can profit from this framework.” Specifically, in Chapter 7 (“Implications for Capital Providers”) they argue “that analyzing a country’s EE [Entrepreneurial Ecosystem] is essential for capital providers to maximize investment returns” and provide a six-step methodology to “help capital providers to sniff out the best opportunities…” The six steps are:
Step 1 (Page 138): As summarized in the following figure, “capital providers can compare each country on the basis of the drivers of its EE’s capital receptiveness.”
Step 2 (Page 140): “…capital providers should conduct industry analysis–focusing on the size, growth rate, and profitability for the average participant of a variety of industries in the country. Moreover, capital providers should think about how the determinants of industry profitability are likely to evolve in the future.”
Step 3 (Page 142): “Having chosen which country and industries in which to invest, capital providers need [to identify] a series of candidate companies…whose managers are skilled enough to take their capital and use it to enhance the value of the company.”
Step 4 (Page 143): “The case studies we explored suggest that success flows from investing in a company that passes the following tests:
- It’s growing and generating cash;
- It targets a large and growing base of customers;
- Its CEO is skilled at identifying new opportunities and exploiting them well…”
Step 5 (Page 144): “…a big part of making an investment pay off is betting on an entrepreneur with whom the capital provider is comfortable.”
Step 6 (Page 146): “…seek the exit option that yields the highest after-tax return.”
In summary, Capital Rising offers case study-derived guidance on exploiting global opportunities for investing in individual companies.
The book is aimed at private equity investors, but the guidance on picking global investment opportunities may have value for individual investors, advisors and funds.
