The recent events around Robinhood and GameStop reflect a tug of war between short-sellers and day-traders and offer a stark reminder that there are lots of investment philosophies.
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Both sides of these recent activities highlighted the desire for quick profits without concern, and sometimes directly opposed to long-term growth and value appreciation. While such financial finagling will continue, sometimes to the detriment of the companies underlying the stocks, the market is also increasingly making more room for patient capital.
Patient capital provides a safe environment for early-stage companies to focus on building their businesses the way in which they were envisioned by their founders. In short, investors are willing to forgo immediate returns with the intent of gaining more substantial, lasting returns down the line.
Such investors provide an array of benefits, including longer investment time horizons, hands-on management support, and a willingness to consider all stakeholders, not just shareholders. Entrepreneurs can utilize both the financial and management support of their investors to create long-term strategies, not distracted by chasing quarterly performance metrics or an increase in market share.
Patient capital in context
Elements of patient capital have existed in the past, falling in and out of favor over the years. In some ways, the fierce competition among venture capitalists to discover the next unicorn has directly empowered startups. Yet savvy founders were quick to identify the drawbacks often attached to standard investors’ influx of capital. In turn, the recent resurgence of greater control by founders along with an increased desire to do well by doing good have led many startups to dictate whose capital they are willing to accept.
With a patient capital approach, their investors become their partners, working to achieve common goals, financial and otherwise, through investment dollars as well as extensive networks for marketing and distribution, strategic advice and mentorship, and later-stage financing.
As startups reevaluate their relationships with venture capital, the SEC appears to be on a path to help them in their endeavor by easing Reg A regulations, making it easier for startups to secure alternative funding that doesn’t rely on the quick return of immaterial profits.
Looking forward
If 2020 was the year of uncertainty, 2021 can be the year of resilience. As people and companies devised new ways of functioning and moving forward, there are some useful takeaways.
Our ability to pivot, our need for patience, our reliance on other people, our creativity are all things that we can internalize and help to shape how we approach life and business going forward.
Soft skills such as collaboration, persuasion, adaptability and teamwork benefit from the patient capital approach. Developing businesses and relationships that will endure and in which we can take pride are valued objectives. So, partnering with investors who are in it for the long haul, who are there to support and encourage, and remain focused on meeting the challenges ahead with a shared vision will help your company achieve its various goals.
Alice P. Neuhauser is Seismic Capital Co.’s chief financial officer and treasurer. Since May 2017, she has served as president of Gramarye Media Inc., helping to develop the business model and business plan for the startup IP incubator. From 2002 to 2018, she served as the responsible officer and manager of The Kushner-Locke Co. and was responsible for all financial and operational functions for the company through its bankruptcy and post-restructuring.
Illustration: Li-Anne Dias
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