Q&A with Prof M Nazri: Insights from Conversation with SPAC Chairmen & Companies (Part 1/5)

CEAI: Prof Nazri, you’ve had extensive experience dealing with many SPAC chairmen and operating companies. Can you share some key insights you’ve learned from these interactions?

Prof M Nazri: Absolutely. One of the most intriguing insights I’ve gained is related to investor preferences when comparing companies with different growth profiles. Let's consider two scenarios: one company has an annual revenue of $0.25 million with a compound annual growth rate (CAGR) of 130% over four years, while another has a $10 million revenue with a steady 5-8% growth each year. Interestingly, investors often prefer the former over the latter.

"High CAGR shows scalability and market disruption potential, driving investor interest."

CEAI: That’s fascinating. Can you explain why investors would prefer a smaller company with rapid growth over a larger, more stable company?

Prof M Nazri: Sure. Investors are typically on the lookout for high-growth opportunities, particularly when dealing with SPACs and early-stage investments. The first company, despite its smaller current revenue, exhibits an impressive CAGR of 130%. This indicates that the company is rapidly expanding and has the potential to scale up significantly. The exponential growth suggests that the company is tapping into a high-demand market or has a unique, scalable business model. For example, imagine a tech start-up that leverages cutting-edge AI to revolutionize a traditional industry. If this start-up shows consistent, triple-digit growth over several years, it signals to investors that the business model is not only viable but also has the potential to disrupt the market and generate substantial returns.

"In NASDAQ-SPAC, investors seek exponential growth, betting on future potential over immediate revenue stability for substantial returns."        

CEAI: So, rapid growth is a key factor. How does this compare to a company with higher current revenue but slower growth?

Prof M Nazri: A company with $10 million in revenue growing at a steady 5-8% annually represents stability and lower risk. However, for investors, particularly those involved in SPACs looking for high returns, such a growth rate may not be as attractive. The potential for significant value appreciation is lower compared to a rapidly growing start-up. Investors are willing to bet on the smaller company because the high growth rate suggests it could quickly surpass the larger company in terms of revenue and market share. They’re looking at the potential future value rather than the current size. For instance, in the tech sector, companies like Uber and Airbnb started with relatively modest revenues but attracted substantial investment due to their rapid growth and market disruption potential.

CEAI: It sounds like the future potential is a major driver for investors.

Prof M Nazri: Exactly. Investors are drawn to the promise of future growth. A company with a high CAGR indicates robust market demand, innovative products or services, and a strong likelihood of scaling up efficiently. They’re essentially buying into the future potential, betting that the company will continue its rapid expansion and eventually offer substantial returns, much greater than what a steady, low-growth company could provide. For example, if you look at the early stages of companies like Amazon or Tesla, they weren’t initially the revenue giants they are today. But their extraordinary growth rates and the potential to dominate their respective markets made them highly attractive to investors who were willing to take on more risk for the possibility of much higher returns.

"Rapid growth indicates high-demand markets, enticing investors over larger, slower-growing companies."

CEAI: Thank you, Prof Nazri. Your insights provide a clear understanding of why investors might prefer high-growth potential over immediate revenue stability.

Prof M Nazri: It’s my pleasure. Understanding these dynamics is crucial for both start-ups seeking investment and investors looking to maximize their returns. High growth rates can often overshadow current revenues, signaling future potential that savvy investors are eager to capitalize on.

Additional Information:

AIV50 Details

Our Value-Add- https://www.aiv50.com/value-add/

AIV50 Model Infographics - https://www.aiv50.com/download/8263/

Press Release

1. THE FUTURE OF BUSINESS GROWTH - https://www.aiv50.com/2024/05/the-future-of-business-growth/

2. AIV50 EYES SME ACQUISITIONS - https://www.aiv50.com/2022/08/aiv50-eyes-sme-acquisitions/

Introduction Videos

1. AIV50 under 50s - https://youtu.be/8wT2Y9W0NA8

2. Our Venture Story - https://youtu.be/KxoEtLl-bqg

SPV Intro Deck v0.1 - https://www.aiv50.com/download/8266/