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Roadmap 04/11 (click here to expand/collapse)

Below is the Roadmap for select April 2011 website articles.    Please note  the website contains many more articles covering these same topics. For example, pre-game is integral to our program for attracting better R&D investment opportunities.

Provide Predictable Funding for Unpredictable R&D+
(Introduction to Franchise Capital Mgmt.)

Make funding more predictable (From Unpredictable R&D to Predictable Investor Returns)

  Attract and Retain Long-Term Investors

– Make a Market (You Have to See It to Believe It)

  Reinvest Interim Windfalls+

Make R&D success more frequent * (Execution is the Key to Success)

  Get Smarter at Tracking R&D Advancements+ and Transitions+ (Exits)
  Attract Better R&D-centric Investments
  Increase R&D Productivity (Execution is the Key to Success)

* Although it's still unpredictable

As funding agent+ we match investors and investments (owners of intellectual property+). Our role as funding agent (as middleman) is to keep investors happy, thereby ensuring steady funding for investments. We do this by packaging unpredictable R&D investments into an offering that is more attractive for investors (the perpetual fund). We do this by direct mediation into our unpredictable R&D investments (via franchise operations+), to ensure above-market productivity. Above-market R&D productivity is the only reliable means to ensure predictable funding.

We Love Investor Exits

Summary: 

Unambiguous measures are few and far between – investor exit interviews are one of these measures and we learn to cherish them.

Before reading this article, it is best to first read the Introduction to Franchise Capital Management, for a more thorough description of the terminology.

Introduction

This is one of our few unambiguous measures of success:

Investors voting with their feet (or not).

This is where the rubber hits the road, so-to-speak. At this moment we have investors who know us well, who know our strengths and weaknesses, and who momentarily are prepared to share their feelings with us. This is not an abstract conversation. This is real money going out the door. This gives us a chance to gain authentic insights on what it takes to retain investors.1

Investors can be irrational. Most investors did not vote with their feet until too late in the 2008-2009 economic crises. But most of the time investors matter-of-factly tell us how they think we’re doing based on their experience. Nothing can be more difficult for management of large enterprises to obtain: a true picture of how things are going (until it’s too late, see here). We treat investor exit interviews like precious gemstones.

Investor Exit Interviews

 

I have your balance right here and I can wire it over to your account immediately, but we should spend a moment to see what it might take to get you to keep some or all of your investment with us.

You’ve done quite well, made a compounded return of 15 percent over the past few years, well above the market … yes, so you know we have a number of our investments nearing their 5 year anniversaries, which often means more windfalls+. Let’s talk specifically about what I can offer to make you reconsider withdrawing all your funds and perhaps to stay with us a while longer …yes

You are quite knowledgeable about our operations and you’ve taken advantage of a number of our retention bonuses along the way…yes.

Every once in a while clients just need to sell shares to handle immediate needs. Since you’ve done so well there are other ways to go, so you won’t miss out on any windfalls. Have you considered taking out a loan from our banking services, using the shares as collateral? That way you won’t miss out on share price appreciation and you can sell fewer shares over the course of several years to pay down the loan … I see.

I don’t wish to push your patience, but since you’ve been with us for so long I can also offer you a windfall protection program. This protects you against missing a windfall for six months covering your entire current investment, if you keep at least 25% of your current balance with us. I’ve been a customer service agent for more than four years and this is the largest protection contract I’ve seen. Fund management must be quite hopeful for some big windfalls and they don’t want investors missing out …

Well thank you very much for your patience. I’ll wire over the funds immediately. This typically takes 24 hours to process. I hope you’ll consider coming back when circumstances permit. Your account remains open. Your accumulated years of membership+ mean you can still enjoy many benefits not available to new members should you come back. Please call me directly should you have any further needs.

Yes, I understand, thanks again for trusting us to manage your investments for so long. We’re sorry to see you leave, but we understand you have other needs … yes.


Everyone has an opinion, but only investors with experience in our operations have an informed opinion.

  • What did and didn’t we do, that you, as a smart investor, found appealing or off-putting?
  • Where did you get your signals+ about our performance, if not from us?
  • What is it about the investor that allows us to tag his or her activities as smart.

Informed investors are the cornerstone of our investment strategy. We want investors to see how having the funding agent+ focus on the productivity of the underlying assets+ leads to their greater long-term financial security.

No Hostages

Our goal is to not be held hostage+ by any one or few major investors, similar to our strategy for investments (here). This means we have many (retail) investors. This does not exclude wholesale (institutional) investors, but the bulk of our funding should come from retail. Losing a few retail investors does not put at risk our promise of continuous funding. Market psychology affects retail and wholesale just the same, but retail will be slower to react, giving us time to shore up financial alternatives (e.g., derivative investment vehicles+).

To make this happen we seek funding from retail customers to cover franchisee+ operations up to their first windfall. We guesstimate (unpredictably) funding needed for franchisees to reach their first windfall, and we attract that amount of retail investment. We use windfalls to fund post-windfall operations. This allows us to use wholesale / institutional money without concern of being held hostage by these investors. We treat their money as discretionary, much like we treat money from derivative investment vehicles.

We commit owners of intellectual property+ for the duration and look for similar ways to commit investors. We build an investor retention+ program. With our use of derivative investment vehicles, a dollar leaving the firm could equal a loss of three dollars to our local economy. It’s worth investing into investor retention activities, for example, see-your-investment-at-work tours, personal financial advisers, account management, retention bonuses.

Systemic Risk+

No one or few events precipitated the 2008-2010 financial crises. This is a warning. We watch the larger market for hiccups, and are proactive in assuaging any concerns voiced by investors. A lot can happen in an economy over 20 years. We analyze investor exit interviews across a number of dimensions, with economic jitters being front-and-center.2

Our intent is to partition, to the extent possible, our financial performance from the larger tumultuous economic marketplace. We are not automotive or oil & gas. We spin off Phase 1 industries+ and firms commercializing innovative products. Phase 1 firms should by their nature be judged differently. They are not subject to the same supply and demand pressures seen in Phase 2 and Phase 3 industries – there is no massive workforce to keep employed. But investor fears are often irrational.

We build a firewall+ around our investors. Shares in the perpetual fund+ are publicly traded, but not third-party to third-party. They’re traded third-party to funding agent.3 A general economic downturn may depress share prices realized during the next open season, and it may delay realization of the next windfall. But since we use a perpetual fund, covering decades, share prices and windfalls realized in any one season will have a moderate impact on overall fund valuation. A general economic downturn hurts, but the financial expertise of the funding agent allows us to weather slow times in anticipation of the next windfall. It’s what we do.

Investor Exits give us discipline. Good times are always followed by bad. We need early warning for when conditions are about to change: a dope slap to wake us from complacency+. Our goal is to provide continuous funding for unpredictable R&D+, over potentially decades. This means we need to be very good at managing irrational investment behaviors+. And this requires we be very good at managing investor exits.


Home Page April 2011

  • 1. ...hopefully in a manner unfiltered by internal reporting structures
  • 2. We restrict investor exits to open season+, but we need to catch the contagion the moment it flares up. Perhaps we should allow early investor exits with penalties, as a mean to capture these early warning signals.
  • 3. Market psychology is mostly driven by ‘the market’ and if we’re ½ of the market, then we control ½ of the psychology.
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