𝗖𝗮𝗽𝗶𝘁𝗮𝗹 𝗔𝗹𝗹𝗼𝗰𝗮𝘁𝗶𝗼𝗻 𝗮𝗻𝗱 𝗰𝗮𝘀𝗵 𝗳𝗹𝗼𝘄𝘀 𝟭𝟬𝟭 The goal of capital allocation is to build long-term value per share. Being a great capital allocator can be compared to being a great investor; it is all about making the decisions that maximises shareholder value. Great capital allocation is the use of cash that generates a return on invested capital (ROIC) higher than its cost of capital (WACC).  Cost of Capital → The cost of capital, or “WACC,” is the minimum rate of return that a company must exceed (i.e. the “hurdle rate”). Return on Invested Capital (ROIC) → The ROIC measures the efficiency by which a company spends the capital contributions of equity shareholders and lenders to generate returns. 𝗚𝗲𝗻𝗲𝗿𝗮𝗹 𝗥𝘂𝗹𝗲 𝗼𝗳 𝗧𝗵𝘂𝗺𝗯 ROIC > Cost of Capital → Value Creation ROIC < Cost of Capital → Value Destruction The greater the spread between ROIC and WACC, the more value is created, and vice versa. 𝗔𝗰𝗾𝘂𝗶𝘀𝗶𝘁𝗶𝗼𝗻𝘀 𝗮𝘀 𝗮 𝗽𝗮𝘁𝗵 𝘁𝗼 𝗺𝗮𝗶𝗻𝘁𝗮𝗶𝗻 𝗥𝗢𝗜𝗖 Many businesses, despite their past success, face ceilings in growth due for a number of reasons: local market saturation, regional constraints and other competitive pressures.  As a result, returns on capital will naturally diminish over time within the business. The key feature of serial acquiror business models is the ability to continue to reinvest capital over and above the hurdle rate by acquiring new businesses. The result is unicorn companies that can grow for decades.

Q: Why do we emphasize so strongly that SME owners should adopt digitalization and make data-driven decisions? A: It is because business competition is INTENSE, and going digital can be a LIFELINE for SMEs Three key takeaways from the article on SME survival from World Economic Forum: 1.) Survival Struggle: 67% of small and medium-sized enterprises are fighting for survival, facing intense business pressures and technological challenges. 2.) Tech Adoption: Overcoming digital hurdles is crucial. SMEs that embrace technology can attract talent, improve efficiency, and enhance productivity. 3.) Economic Impact: Despite their significance, SMEs have seen a decline in GDP contribution, largely due to a lack of technological adoption. This is also our key investment strategy by adopting the "digital +" approach to partner with SME owners in their digitalization journey to unlock their business potentials! Chris Chan (EMBA, CPA), Steven Chong, Raikk Chan, Tracy Ko, ZB CAPITAL, Zubbily #datadriven #DigitalTransformation #SMEs #investmentstrategy

I've been warmly welcomed into the HKUST Founders' Club as a fellow, an entrepreneurship program established by HKUST Entrepreneurship Center! 🌱 This opportunity is more than just an honor; it's a doorway to a realm of endless possibilities and learning. 🚀🚀 The Founders' Club is renowned for its vibrant ecosystem of innovators and entrepreneurs, all driven by a mission to create impactful change. Joining this community isn't just about what I can bring to the table, but also about the growth, insights, and collaborations that await. My aspiration in this new role is not only to contribute my experiences and learnings but to also absorb the wealth of knowledge that surrounds me. I'm particularly keen on exploring how AI and innovations can be leveraged for sustainable growth and positive societal impact. 🚀🚀 This fellowship represents a commitment to my journey of continuous learning and to contributing meaningfully to the entrepreneurial landscape. I'm eager to engage with fellow innovators, challenge my perspectives, and together, pave new paths that lead to transformative solutions. Here's to the journey ahead, filled with curiosity, collaboration, and creation. Let's make it remarkable! ✨✨ #HKUST #FoundersClub #Aspirations #Innovation #Entrepreneurship https://lnkd.in/dKez2pVj Ryan Poon, CFA, CAIA Steven Chong Raikk Chan Tracy Ko ZB CAPITAL Zubbily HKUST Entrepreneurship Center

Sharing some insights on the "Cap Table Issues" from our own expensive experiences - excessive dilution and founder's fight: Operating Founders: Early-stage founders need to remember that the first round of funding could potentially be the last. Quote from MIT: Innovation = invention + COMMERCIALIZATION. It’s crucial to be frugal and invest wisely in people and customers to validate your business model. Track your spendings and results weekly if not daily and discover a pathway to profitability asap. This is the only route to self-sustainability. Exiting Founders: Founders who are exiting the company have earned their credits by starting the business. However, holding onto 30%-40%+ of equity without contributing anymore can impact the company’s future. It can affect the drive and incentive of the remaining founders and leave limited room for ESOP. It can also influence external factors like equity funding and securing bank loans when PG is required. Remember, it’s better to own 10%-20% of something than 30%-40%+ of nothing. Investors: While it’s common for investors to seek more equity for their investment, it’s crucial to strike a balance. The ultimate success of an investment is achieved when the business and the founders thrive. So, while aiming for returns, remember we are not in the driver seat, and we need to be reasonable and supportive of the business and its founders. Fairness and foresight in equity distribution are vital. Always keep the company’s long-term interests at heart. Chris Chan (EMBA, CPA), Steven Chong, Raikk Chan, Tracy Ko, Zubbily, ZB CAPITAL #startups #founders #investors #equity #businessinsights

Startup class of 2018 -  where are they now? One of the questions I'm asked most is, "how likely is ____?" How likely is an acquisition? How likely is it my company makes it to Series A? So many probabilities. So let's take a concrete example and run through the possibilities. There have been 3,067 US startups that incorporated in 2018 who used Carta as their cap table provider. This analysis looks back over their progress in the intervening 6 or so years. 𝗢𝘃𝗲𝗿𝗮𝗹𝗹 𝗦𝘁𝗮𝘁𝘂𝘀 • 1,380 startups are still ongoing (45%) • 1,522 startups have shut down (49%)  |  𝘪𝘯𝘤𝘭𝘶𝘥𝘦𝘴 "𝘰𝘯𝘨𝘰𝘪𝘯𝘨" 𝘱𝘳𝘦-𝘴𝘦𝘦𝘥, 𝘴𝘦𝘦 𝘣𝘦𝘭𝘰𝘸 • 161 have been acquired (5%) • 4 have IPO'd (0.2%) Couple caveats before we jump into the progress tracker. These are US startups only. Pre-seed means they have yet to raise any priced round, though some have raised capital on SAFEs or Convertible Notes. All sectors included except Biotech/Pharma, which was removed because of how different the IPO market is for those companies. How far has this cohort of companies gone so far? • About 38% remain in the Pre-Seed stage. It's a little tricky to see exactly what's happening in this stage (as Carta is free for anyone who has yet to raise $1 million - so many companies simply don't close their accounts).    • 24% made it to a priced Seed round. Most total acquisitions at this stage as well.    • 25% are at Series A! Largest group of "ongoing" companies remain here.    • About 10% have raised a Series B - and we have our first IPO at this stage as well (meaning Series B was the last round raised before going public).    • Only 3.2% have gotten through their Series C fundraise in 6 years    • 0.7% have made it to Series D or beyond. Those later stages get narrow pretty damn quickly. Now - fundraising isn't the only measure of a company's progress (or perhaps even the best one). I'm sure there are companies in this sample who decided to stop raising rounds and revenue-fund their growth. I just can't tell which they are so can't plot them separately. Hopefully this lends a little data to the feelings around VC-backed startup outcomes. I wonder what surprises you most - or which year you'd like us to dig into next! Subscribe to the Data Minute newsletter at the link in graphic for this sort of data-driven startup analysis every week. #cartadata #startups #venturecapital #fundraising #founders