INDEV308 Class 4 - Identifying Business Potential - Serge LeVert-Chiasson, Sarona

Assessing Business Potential

110 -1B Frobisher Drive, Waterloo ON N2V 2G7, Canada | 1.519.883.7557 | [email protected]

By Serge LeVert-Chiasson, CFA, MSc, IMBA

For the INDEV 308 Class

Presented on May 30, 2011

This is not a purchase offer, nor the solicitation of a purchase offer. Any such offer or solicitation will be made only by means of a final offering memorandum

and only in those jurisdictions where permitted by law.

AGENDA


INDEV 308 – Monday, May 30th, 2011

1. Introduction to Sarona Asset Management

2. A bit about my role at Sarona

3. How do we assess investment opportunities?

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4. Main takeaways for budding entrepreneurs

5. Two case studies:

a) Agro Capital Management of Ukraine

b) Mobile Transactions Zambia of Zambia

Answer the questions at the bottom of the deck and you can win a prize!

SARONAASSETMANAGEMENT

In all we do, we strive for

Excellence – Honesty – Integrity – Creativity

Sarona has a 58 year history of investing in frontier markets around the world.

Sarona is a private equity investor, seeking market rate returns.

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Sarona is an impact investor, believing our personal life values inform our

business decisions. We believe that private equity firms that enact progressive

business strategies in their portfolio companies will outperform their peers.

Sarona invests in businesses that:

• treat their suppliers, employees, and customers like their own families;

• are environmental champions in their communities; and

• are known as outstanding ethical leaders in their community and industry.

Where does Sarona invest?

1953

1968

1995

1997

1999

Access to top-tier managers and

investing alongside

international partners

First Impact Investment in Sarona Dairies

Leading to nearly 60 years’ experience

First Microfinance Investment

Strong presence in global industry associations

Launched MEDA Access Fund

Building upon values of Excellence and Integrity

Launched Latin America Challenge Investment Fund

Strong third party supplier relations ensuring accountability

Launched Sarona Global Investment Fund

Adhere to ILPA

principles

SARONAASSETMANAGEMENT

Key signatory

Investors’ Council

Affiliated with:

1999

2004

2007

2008

2010

2010 First Global Impact Fund of Funds – SFMF I LP

SFMF I LP performing well since vintage year 2010

Launched MicroVest Short Duration Fund – MV SDF I LP

Partners have solid PE, investment and frontier market experience

Launched MicroVest II LP

All Funds under management outperforming targets in all markets

Launched Sarona Risk Capital Fund I LP

Known for strong governance and ethics within industry

Co-founded and Launched MicroVest I LP

Expanding upon values of Honesty and Creativity

Launched Sarona Global Investment Fund

Established brand as presenter to frontier PE and impact conferences

4 ConfidentialWhat is impact investing?

SARONA FRONTIERMARKETS FUNDDIVERSIFICATION

27%

11%

11%11%

10%

10%

7%5%

4%

2%

1%

Portfolio Exposure by SectorAgribusiness

ICT

FMCG

Clean Energy

Financial Services

Light Manufacturing

Health

Education

Affordable Housing

Professional Services

Sustainable Forestry

22%

28%24%

12%

14%

Portfolio Exposure by Region

LAC

Africa

South Asia

East Asia

Eastern Europe & CIS

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Sustainable Forestry

Water

23%

44%

33%

Portfolio Fund's Avg Transaction Size

Less than US$5M

US$5 to US$12.5M

US$12.5 to US$20M

23%

13%

10%

9%6%

4%

3%

3%3%

26%

Portfolio Exposure by Country

India

Turkey

Kenya

Peru

Mexico

Thailand

Indonesia

Morocco

Philippines

Other (27 Countries)

What are the advantages of diversification?

AGENDA






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CHIEF INVESTMENT OFFICER

Serge LeVert-Chiasson, CFA, MSc, IMBA

Background:

• CFA Charterholder, Masters of Science in Accounting / Finance

from LSE, International MBA from Schulich Business School

• Experience in private banking, international business, private

equity, international lending and international a/r insurance

• Travelled to over 50 countries / French, English, Spanish

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• Travelled to over 50 countries / French, English, Spanish

My role at Sarona:

• Conduct due diligence and present investment proposals to board for funds

under management

• Monitor, add value and exit investments in portfolio

• Create new funds and assist in capital raising

• Participate in general office management as well as employee supervision,

motivation and training

• Develop processes, policies and procedures for improved productivity

What does CFA and LSE stand for?

AGENDA






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OUR INVESTMENT PROCESS

Desk ResearchReview

Investment Thesis

Assess Impact

Strategy

Review Marketing Material

First Conference

Call

Investment criteria

Minimum IRR Target

Minimum Terms and Conditions

Focus on Sector or

Geography

Deal size between $2-

25M

Impact Strategy

Legal and Track Record

Review Legal

Documents

Review Fund Model

Review GP Financials

Review GP Track record

Due Diligence Form

Information Memo

Executive Summary

SWOT Analysis

Risks & Mitigants

Identify Red Flags

On Site Due 2-5 day visit 2-8 pipeline Review of Meeting all Partners, Local IC

Entire process can take four to eight weeks

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On Site Due Diligence

2-5 day visit w/ 2 people

2-8 pipeline visits

Review of Process and Procedures

Meeting all Managers and Staff

Partners, HQ, offices

visited

Local IC members

visited

Third Party References

Call 3-5 committed investors

Call auditors/ lawyers

Reference checks

Call Inter. IC members

Call major service

providers

Call industry / geography

experts

Contact competitors

if possible

Investment Memo

Executive Summary

Terms and Conditions

Review

SWOT Analysis

Country/ Sector

Analysis

Manager Review

Legal Review

Major risks and

Mitigants

Board ApprovalPresent the Investment

Memo

Make the case

Key risks and

mitigants

Motion to approve

NegotiationsImplement

Board motion

Identify LP friendly terms

Side letter if necessary

Legal, Execution & Disbursement

Use legal firm if

necessary

Sign subscription agreement

Wire transfer

funds

Monitoring & Risk Mgmt

Quarterly & Annual reports

Contact with team

Attend annual LP meetings

Visit local offices

Share best-practices

Access Sarona

network

Report back to our LPs

How many major steps are there in the due diligence process?

AGENDA






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ASSESSING BUSINESS POTENTIAL

Product, Market, Process, People, Financials

1. Product: Clearly define the need / gap your product or

service seeks to fill. Focus and Consult

2. Market: What market are you after? What competition do

you face? Bowling Pin / Niche

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3. Operating Model: What is your business model? What

partners do you need? Draw it and figure the problems

4. People: Who do you need to successfully execute the

business model? What skills are you missing? Hire

5. Financials: Is the business sustainable? What are your

assumptions? What financing will you need? Count

Which of these categories is most important?

INVESTORS INVEST IN PEOPLE NOT IDEAS

Lessons we’ve learned the hard way

1. Great ideas + bad implementers = failure

2. Poor ideas + great implementers = probable success

3. Numbers do matter… Do the math. Is your business

sustainable? Are your assumptions credible?

4. Consult, consult, consult. Seek feedback from as many

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4. Consult, consult, consult. Seek feedback from as many

different points of view as possible. Listen to your critics.

5. Pilot your idea and seek to learn from your early, lower risk

mistakes. Seek realistic milestones and meet them.

6. Finance yourself with people who will help you succeed

7. Understand your risks and find ways to mitigate them

8. Stop talking. Start doing.

What distinguishes a social business from a regular business?

AGENDA






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AGRO CAPITALMANAGEMENT (ACM)

ACM provides asset financing of agricultural packages to Ukrainian smallholder

farmers to improve their farm incomes and works in partnership with technical

assistance providers to ensure success

ACM Sales

leads model

MF CF +

Qualitative

Assessment

of clients

International

board

Greenhouses

(GH)

Table Grape

Packages

(TGP)

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Target

Clients:

Small-holder

farmers and

Agri SME

of clients

Partnering

with local

suppliers

Partnering

with farming

groups

Flexible

Payments

Innovative

use of SMS

technology

Experienced

ACM staff Cold Storage

Units (CSU)

(GH)(TGP)

Agricultural

Equipment &

Machinery

(AME)

Strawberry

Package (SP)

Why did we start a new company in Ukraine?

ACM CLIENTS

Mr. Dilyaver Seythalilov purchased greenhouses and refrigeration equipment from ACM to grow his agribusiness. He was able to employ additional workers to work in the cold storage unit over the winter as well as grow his greenhouse space by 3,000 square meters.

Mrs. Marina Kuzmenok is a local accountant in the village council of Saki, Crimea. She heard about ACM from the regional tax administrator and received a 0.1 hectare table grape package supplied by Agro Yukos, one of ACM’s suppliers. She has since convinced four of her neighbours to grow ACM table grapes

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ACM table grapes

Mr. Edem Mamutov is a local Tatar from the Prudovoe village near Simferopol. He was thinking about growing table grapes for a long time but did not have the financing. When he heard about ACM, he jumped at the opportunity. “The technical assistance I received from ACM was great as well as the speed and quality of service.”

Mr. Aleksandr Sinenko lives in Kherson and manages a medium scale agribusiness that employs 80 permanent employees and 100 seasonal workers. With ACM’s financing for cold storage units and greenhouses, he was able to hire 3 more permanent employees and 30 more seasonal employees.

Where in Ukraine is ACM active?

WHAT DIDWE LEARN FROMACM?

► ACM Sales Agent Model – First experience with fraud

► Death of the CEO had major effect on business

► Never underestimate time for greenfields

► The power of aligning interests with clear goals / cash

► Partnerships are built on trust, not contracts

► The importance boards with aligned interests

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► The importance boards with aligned interests

► Focusing on profitability too quickly may reduce your ability to

mitigate certain risks

► Using old technologies in new ways reduces costs and improves

business performance (SMS)

► The importance of excellent customer service in building a business -

Word of mouth works!

How many clients does ACM have today?

AGENDA






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MOBILETRANSACTIONS ZAMBIA (MTZ)

Mobile Transactions Zambia provides low cost, safe, easy and convenient money

transfer services to base of the pyramid clients in Zambia. It also offers innovative

mobile payment solutions to corporations, governments and non profits who deal

with clients in the informal economy.

18 ConfidentialIs Zambia in East, South, West or North Africa?

MTZ – BUSINESSMODEL

Corporations

Government

MFIs

Suppliers

Sources Sinks

BC

Cash Agents

UC

Banks

ChannelsConsumers

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MFIs

Donors

NGOs

Utilities

MFIs

Cash Agents

Electronic

Agents

UC

UU

Value Creation:Mobile TransactionsMobile NetworksBanks

Legend:BC = Banked & ConnectedUC = Unbanked & ConnectedUU = Unbanked & Unconnected

What does MTZ do differently from other mobile payment providers?

MTZ – ISTHIS A SUSTAINABLE B-MODEL?

$-

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

Financial Summary

TOTAL REVENUE

TOTAL GROSS PROFIT

TOTAL OPERATING EXPENSES

EBITDA EXCLUDING GRANTS

NET INCOME

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$(15,000,000)

$(10,000,000)

$(5,000,000) 2010 2011 2012 2013 2014 2015 2016 2017 2018

-10000000

0

10000000

20000000

30000000

40000000

2010 2011 2012 2013 2014 2015 2016 2017 2018

Cash Flow

Total Change in Cash Position

CLOSING CASH BALANCE

In what year will MTZ start generating a positive net income?

WHOWINSTHE PRIZE?

Thanks for your attention!

Question and Answers

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Question and Answers

1.519.883.7557

110 -1B Frobisher Drive, Waterloo, ON, N2V 2G7, Canada

saronafund.com

[email protected]

This is not an offering or the solicitation of an offer to purchase. Any such offer or solicitation will be made only by means of a

final offering memorandum and only in those jurisdictions where permitted by law.