The Forward Echelon VC CEO is helping to consolidate and finance top notch SMEs throughout Asia.

By Dr Farid Lian

When the Baby Boomers enter retirement, what happens to all their experiences, resources and assets? Do they pass it on to their loved ones, leave it to charity, or perhaps die intestate? 

A wise American writer once said reality is “stranger than fiction”. There are facts which, if you come to know about it, will leave you bewildered. 

Let’s embark on a story: Frank, a baby boomer, runs his own successful medical practice with 90 employees. He is planning to retire in the next two years and travel the world with his wife Tamara. His son, James, has graduated in social studies and is planning to do a doctorate in political science. 

You will think the obvious thing to do is pass the business to the son, right? Wrong! Studies by reputable investment firms have shown that 80% of heirs would rather be granted cash than the business and the parent would rather pass the business to someone who will continue the legacy. 

Furthermore, discussing about death and where assets end up after they pass away are subjects most senior citizens like to avoid, resulting in many among them going intestate. There are tens of millions of these cases happening around the world. 

There are over two billion baby boomers who are about to retire between 2020 to 2040, representing 29% of the global population. About 20% to 30% of these baby boomers own small to medium-size businesses (SMEs).

SMEs drive growth globally 

Most research indicate that small and medium enterprises play a preponderant role in fuelling the economy. Initially the baby boomer generation ran the SME space. However, some aspiring entrepreneurs also fall within this category. We have seen and continue to see the wave of start-ups in technology having an effect on the global economy. 

Here are some interesting facts that are food for thought. Did you know that 50% of the gross domestic product (GDP) of most countries comes from SMEs? So, half the economy is steered by companies that employ less than 200-250 people. Plus 90% to 98% of private sector employees work in small to medium enterprises.

What this means is that SMEs are the absolute engine of the global economy. Nonetheless, SMEs have a difficult landscape to survive in. For instance, if a McDonalds outlet opens next to a local burger place, the local business will likely see a large decline in sales and ultimately might go out of business. 

That’s because McDonalds firstly is a well-known brand, and the owners of the franchise are expected to be well capitalised, able to attract good employees and have access to more capital. 

At Forward Echelon Venture Capital, we have detected two key problems in the entrepreneurial space today. One is the number of baby boomers retiring and, two, the young entrepreneurs with businesses but are in the struggle phase of their entrepreneurial journey. 

“Problems usually translate into opportunities – the Japanese family treats a problem like a golden egg, because after it has been solved it brings the family together and makes them stronger,” states Forward Echelon Venture Capital CEO Amer Alamer. 

SMEs not getting their share 

Against the trillions of dollars available for investment, zero dollars of those trillions in private equity funds and bank vaults are trickling down to SMEs. It’s quite strange, isn’t it? 

From our research at Forward Echelon Venture Capital, we have concluded that all the money available for investing is detached from value creation. It’s basically a virtual casino, with companies betting on other companies through derivatives. Let me shine a light on the four key reasons for this situation. 

  1. Small businesses initially are quite risky. They go bust more often than big businesses.
  2. Small businesses lack scale. You have to be big to get big is just perception. As a small business, you will not be able to bid on contracts that are larger than 30% of your revenue, according to procurement policy procedure. 

This is exploited by the bigger players who tend to win the big contracts and give the crumbs to the small companies who actually perform and deliver the work. For a small business owner this feels like they have some sort of transparent barrier, where he can see the big deal but cannot reach it. 

  1. Small businesses are illiquid. Investing into SMEs is horribly illiquid. Entrepreneurs know it best, the three to five year plan actually translates to 10 to 15 years. In that period, politicians have changed, tax laws have changed and everything has changed, so why would you allocate your capital into such a horrible asset class? 
  2. Talent acquisition. Small and medium size businesses cannot attract top talent to join their company – firstly, they cannot afford their salaries and, secondly, because of the three points discussed earlier. 

At Forward Echelon Venture Capital, we are solving the problems facing SMEs and unlocking global capital by tackling issues such as the risk involved, scale, liquidity and talent acquisition. 

Exponential growth strategy 

The company’s CEO Amer Alamer is a proponent of exponential growth rather than arithmetic growth. Forward Echelon Venture Capital grows businesses through acquisitions. The company is an award-winning family office specialising in real estate and business investments. We acquire both performing and underperforming businesses with or without management teams. 

Forward Echelon Venture Capital will only target investment opportunities where it can leverage the operational expertise of its managing partners to create significant shareholder value. We are solving the issues facing entrepreneurs by listing blank cheque companies and bringing private companies into the stock market and growing them through acquisitions. 

We are in talks with our lawyers on either listing a special purpose acquisition company (SPAC) on the NASDAQ or on the London Stock Exchange as this predominantly will solve the issue of risk, scalability, liquidity and talent acquisitions. 

Furthermore, it will also solve the problem for baby boomers who are looking to a smooth transition into retirement with a lower tax burden and leverage on an experienced board to continue their legacy. 

Companies that have real estate holdings or own their real estate will be carved out and be listed in a real estate investment trust (REIT) sponsored by a Forward Echelon Venture Capital vehicle so as not to skew the company valuation. 

Forward Echelon Venture Capital will bring a unique equity product to market for investors looking to deploy their capital in high-growth companies with high gross margins, large market size, scalability, employment market and a high barrier of entry. 

It is looking for successful companies with positive cashflow in the US$1 mil-US$100 mil Net profit range. The company should be in operation for more than five years with audited financials from a reputable accounting firm. It should have no major capital expenditures and preferably debt free. 

Sectors we are looking at are healthcare, IT, media, real estate and property management. We are also looking for real estate in the medical, self-storage, work force sectors, and office buildings with high grade tenants. 

For enquiries, contact Forward Echelon Venture Capital at +965 2227 3854, info@forwardechelonvc.com or visit www.forwardechelonvc.com.

Dr Farid Lian is a Bloomberg contributor, central banker and economist.

 

Click here to read the full article in the digital edition of Smart Investor (April 2020 issue).