On 5 April, the conference "Raising Capital for the Business Development of IT Companies" took place, organised by the Association of IT Distributors of Ukraine with the assistance of the National IPO Committee (a project of Expert-Ukraine magazine). Yuriy Syvytsky, Vice President of Softline, took part in the conference. In his presentation, he introduced the participants to the nuances of relationships between the owners of IT companies and investors.
The presentation paid attention to the specific nature of the IT business. It lies in the fact that the IT industry is the most globalised industry (since borders are not a serious obstacle to doing business), tangible assets quickly become obsolete and mean little, while intangible assets represent the main value. However, valuing intangible assets is a considerable problem, since knowledge, rights, brand, stability (customer dependence) and the elasticity of sales channels cannot be accounted for. It can also be difficult to draw the line between investments and expenses.
Using Softline as an example, Yuriy Syvytsky showed the advantages and disadvantages of direct investment from the point of view of the investor, the company, top management, staff and the company's original owners.
For the investor, the main advantage of direct investment is rapid growth in capitalisation. The technology race offers many opportunities, including financial ones. The disadvantages include high technological risks, resource turnover and heavy dependence on staff.
For the company, direct investment means access to financial resources (for a breakthrough or to sustain growth), to portfolio companies and new markets, as well as to international experience. Possible risks are the intrusion of an alien culture and the imposition of a wrong business model, which may lead to the destruction of the company.
When an investor appears, the company's top management gets larger-scale and more dynamic work, as well as new knowledge. The downsides are the formalisation of relations with the company's owners and the real threat of being drawn into a "tug of war" between the old and new owners. In addition, one has to think constantly about the company's capitalisation or return on investment.
For the company's employees, the arrival of an investor is a factor that brings uncertainty, so in order to retain staff – the main resource of IT companies – it is necessary to "prepare the ground" in the team in advance, before the investor appears.
For the company's original owners, the arrival of an investor will help them step outside the usual decision-making circle, take the company's development and value to a new level, and realise new opportunities and ideas. The negative aspects include the threat of a struggle for influence over the company and the risk of belonging to an odious financial group (so the choice of investor must be approached very responsibly). The owners will also have to change their status – they will no longer be the masters, but merely some of the company's shareholders.
What conclusions can be drawn?
- If you have decided to bring an investor into the company, you must clearly understand why it is needed.
- When choosing an investor, pay particular attention to their reputation and corporate culture.
- You need to agree with the investor on the development goals and the logic of achieving them.
- All relations between the investor and the company must be built on the principles of mutual respect – no proprietorial ambitions! Trust and comfort are born only from solving problems together and keeping each other constantly informed. Any quarrel between the owners can dissipate the company's intangible assets.