In a recent article, Tom Gardner from MotleyFool shows us how we can hit a 25 times return over 6 years. And, most important how to find it!
It gives 3 rules:
- Solid financials.
- A non-dilutive board.
- Founding leaders with major ownership stakes.
And a capitalisation under 1 billion USD.
What we must keep in mind is the following:
If you want to smell the Gold, Aim at the Small! It sounds obvious… Not so.
I think that ‘small’ is a too arbitrary term to be a serious component of an equity search. Instead of ‘small’ I will consider Innovation. Why? firstly, because it means creation… creation of added value. And secondly, Innovation is synonymous of Start.
So, if we take the first 3 rules and add the Innovation component. We come out with a ‘potential’ success story. Should I talk about Google? or Apple (Ipod)?
Apple was under artificial breathing before the IPod release. Google was even nonexistent.I have an other example in mind. The Who was almost bankrupt before Tommy the RockOpera. Tommy was a pure musical innovation. And a pure financial success story (and still is).
The other point to mention is Innovation could be cheap. A 50 000 USD investment in a Web 2.0 (or whatever you want to call it) start-up could bring millions overnight. Talk about YouTube or DoubleClick.
Innovation donot garanty a 25 times return over 6 years but it certainly assure a great earning potential.
