Investing in early stage companies

Investing / Portfolios
1

hi, something i’ve been thinking about is investing in early stage companies. to be clear i don’t mean startups that are pre-revenue or series A or don’t have a business model or are unclear on what they are selling… that’s venture.

I’m talking about companies that have revenue, (may or may not be profitable) and are publicly traded. I’ve been developing a few criteria to identify these companies. If the “algorithm” works they could be 10-Baggers and worth make some bets. yes they are risky investments and not huge positions but if i’ve done a good job they are calculated risks

some here will say go to the casino or bet on crypto but what I am looking at is companies with proven growth, positive margins, improving cash flow, and an industry that I understand. I don’t have any thesis or convictions about casinos or crypto.

to give a concrete example: senzime

has anyone here also considered early stage companies? which criteria do you consider?

2

How do you define early stage? According to a quick search on Google, the company you mentioned was founded in 1999. Hardly early stage? I usually have a look at crowdfunding pages like Oomnium in Switzerland. Every now and then there is something interesting, though not publicly traded but you usually get digital shares that you can potentially trade too.

3

perhaps early-stage was a bad definition. the intent is to find companies that are on a growth trajectory either due to market expansion or product breakthroughs. senzime falls in that category for me

i was not familiar with Oommium but i guess it is a bit like seedrs which i consider as startups with no easy liquidity and not enough public information to really know

4

Shouldn’t a growth path be profitable?

Senzime is losing money over the last 5 years (stock lost more than 30% YTD). Earnings per share is negative at least since 2019.

What’s your definition of growth? Looking at net sales only?

5

Ideally yes it should be profitable but not always. I don’t want to get hung up on the Senzime example but their revenue is ~45% devices and ~55% disposables. They are pushing on growing their install base with devices and then create a recurring revenue stream with disposables… the standard gillete play if you will (but with higher switching costs). their projection is by 2030 90% is recurring revenue (which is profitable). they target to be cash flow positive next year. (like I said earlier yes they are risky investments and not huge positions but if i’ve done a good job they are calculated risks)

perhaps this is why my mind went to “early-stage” in the opening thread. so what do you think about the original question?

6

I personally do not invest in such companies.

I see shares in this type of company as being very volatile because they are focused on a very specific business. The slightest piece of bad news can send the whole thing spiralling out of control.

You’re talking about your method of stocks picking and at the same time saying they are bets.

It seems contradictory to me.

Would you mind sharing your full analysis on senzime?

7

fair enough, but you are also cherry picking my words. the obvious context was “worth making some bets”. i could argue anything is a bet these days. i also said calculated risks (twice) :slight_smile:

i started the thread to ask this community if anyone does this or has considered criteria to do so. senzime was one that popped on my radar after applying some of my criteria. I am still developing it for myself so don’t want to share it until it is somewhat vetted. happy to do so after

8

I have friends that made returns in the 1000 percentage points by investing in VC or (genuine) early-stage companies. But in every one of those cases, they were personal friends with the owner and had in-depth knowledge of the product and the company’s inner workings. In other words, they knew that their friend had what it takes to create the product and take the company through to a successful exit, and they trusted in their friend’s personal integrity (e.g. that the person wasn’t trying to scam them). In all of these cases, the companies had also gotten investment from VC firms, so professional due diligence was done.

Without that kind of knowledge, it’s really kind of a shot in the dark, because private companies aren’t subjected to the same in-depth public auditing as exchange-listed companies.

3 Likes
9

100% agree, though the companies I target are publicly listed providing more availability to audited data