Explicit Risk Mitigation In Growth Investing

NewWorld seeks explicit risk mitigation by avoiding the “Six Devils” in company investing.

The Six Devils:

• Technology Risk

  • Ensure product development, sourcing, deployment, and market acceptance has occurred
  • Require a revenue record and positive EBITDA
  • Prefer business scaling possible with existing manufacturing facilities or low-cost expansion/outsourcing
  • Test Backwards Compatibility to existing downstream distribution and after-sales service

• Regulatory/ Subsidy Risk

  • Evaluate on a case-by-case basis
  • Do not factor anticipated regulatory policy
  • Use subsidies as an aid, not a foundation
    

• Hydrocarbon Pricing Risk

  • Avoid companies whose value depends on high hydrocarbon prices
  • Minimize hydrocarbon pricing volatility by preferring companies less relient on hydrocarbon energy
  • Prefer companies with low transportation and distribution costs

• Capital Scale Risk

  • Avoid asset-intensive products / businesses that require substantial upfront investment
  • Prefer milestone-based fund release

• International Competitor Risk

  • Avoid segments targeted by China or other Southeast Asia competitors that may benefit from significant market scale, cost and regulatory-support advantages in sectors prioritized by their governments

• Business Scaling Risk

  • Ensure a real sales pipeline exists prior to investment
  • Establish a close working relationship with the management team/fill management skill gaps
  • Leverage NewWorld’s business-building skills
  • Intervene quickly on management issues

NewWorld also seeks to reduce portfolio level risk by building a diversified portfolio across industry segments, diversifying value factors and risk factors within the portfolio, and seeking some Horizon 1 investments (as well as others requiring longer to develop to full scale).