A SPECTRE IS HAUNTING RUSSIA -- THE SPECTRE OF EQUITY FINANCING

THIS POST WAS ORIGINALLY PUBLISHED JANUARY 19, 2007
 

To be, or not to be: that is the question:
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing ..... end THERE - at NYSE, LSE?

For the past four years I have been actively engaged in efforts inducing Russian companies to various equity financing options. We have started way back in 2002 when most of the managers that I interviewed thought that I am some sort of an escape from the lunatic asylum: “IPOs? For us? NO!”. As the time went by - more and more shareholders got accustomed to the idea, and now WE ARE THERE... Just look around – and sure enough – you'll find a good bunch of top Russian managers and owners already ringing the bell at NYSE or posing for the picture at LSE web-site... In their dreams...
So, what's going on? How do the people feel about this new trend that is nagging their minds days and nights? Well, there is a wide spectrum of feelings with two extremes - “I will never ever give a single part of my baby to these damn American imperialists!” - to another one: “I will give everything I owe... ///not just to touch you- NO/// ... to make American dream come true”. As it is obvious – the truth is in-between. Let me try to pin point some of the most widespread peculiarities about Russian picture of equity financing.
First and most, practically a handful of Russian businessmen understand WHAT equity financing is. I may cite a lot of examples, just one of them – after extensive 2-hour long explanation of private placement procedures to the Chairman of one of medium-sized Moscow banks I got the question: “OK, understand everything – so what would be the increase in clientèle number and when I should give back your money? And one more – you did not tell me a word about interest rate?”. And this is very typical. Trying to be in the “in the vogue mode” many make these hasty IPO announcements, but when faced with realities: “Oh, no, we never thought that this requires THAT workload”. There's also certain number of businessmen that think that 'somehow we will make it' – never understanding due diligence process, etc.
So, when going to work with the Russian companies, besides well-known “Russian traditions” ('chut-chut' vodka for the road), we need to understand some realities of our business life. I am not speaking about BIG BIG players (GAZPROM-type, etc.). I am speaking about mid-cap and upper-mid-cap (in $ 50M -$ 100 M annual turnover range) companies that I was and I am currently dealing with. There is an abundance of such companies, that for now are sort of left out of sight by big financial players. So, it is very easy to guess what is the solution for that – ROLL UPs, ROLL UPs, and ROLL UPs. While it is not an easy task to find a kindred spirit, but recently more and more entrepreneurs are finding this to be quite a feasible way.
That's why, I guess, in current circumstances the role of financial advisory and consulting companies is as acute as it was never before. Presently the mentality of shareholders has reached the level that was never at before. Paraphrasing Oscar Wild, I would say that it's is like a delicate exotic fruit – touch it and the bloom is gone. So we are here, dancing around this fruit and holding bowls in our hands to capture the bloom. Recently I was faced with a number of entrepreneurs that honestly and bluntly told me:“ I need money, but I do not know how to get it”. Now, the idea of equity financing is capturing the minds. A SPECTRE IS HAUNTING RUSSIA -- THE SPECTRE OF EQUITY FINANCING (hey, I am not Karl Marx!!!). So, that is the roadmap – try bonds, private placement, and IPO. This road is “the long and winding”, but the results are obvious.
And of course, the first step is EDUCATION. Me and my associates spent quite a while at analyzing all available financial pubs and adapting them to Russian reality. This gives results – our presentations are widely requested and they are the bait that leads to further meetings and discussions.
So, I guess, it's enough for the beginning...