Waiting for customers to pay has been the bane of many a small business. While larger entities can weather the lean times, the companies without a huge reach or deep pockets can falter and fall into demise without quick funding. Nobody cares about the little guy though, right? Adeta Family Group (“AFG”) Investment Director Nikita Chirkov sees potential in the situations which often get overlooked by large pension funds, insurance companies, and endowments.
A member of the UK Business Angels and a judge at Startup Network and the Unicorn Battles, Nikita has built a respected reputation throughout the investment industry as a professional who shrewdly perceives the unobvious potential and the significant gains possible with smaller entities. It’s impossible to ascend to an elite position without altering from the status quo and Chirkov has achieved this for himself, AFG, and the clients they work with. Great things are achieved by those who reinvent and carry others in tow with them.
There are a number of reasons that smaller businesses are a more attractive investment opportunity, most obviously is a lack of complexity. Smaller and leaner means decision making is quicker and there is less bureaucracy/ red-tape to navigate.. In the last few years, Chirkov’s team at AFG began advising its clients on providing private debt and structured credit to the UK and German businesses in the form of asset backed lending. This was achieved through invoice financing. This process allows businesses to borrow money against the amounts due to them from customers.
By doing this, they improve their cash flow, pay their employees and suppliers, and reinvest in operations. This makes it easier for them to grow compared to if they wait for the customers to pay the balances in full. Potentially disastrous delays in cash flow are avoided so smaller businesses can thrive while profits are earned by investors.
For example, a business may have outstanding invoices for $100,000, and if it gets finance on this basis, the lender will pay it $90,000. This means, the business gets $90,000 at once, and doesn’t have to wait for its customers to pay, while the lender will receive the $100,000 when the customer pays. Risks are minimal for the lender and for the business as everyone is driven for the success of all involved parties.
The key to this model working is unobvious to most, but not to Nikita. He divulges, “The solution is to scout the market for great emerging managers with a need for matching capital, but these opportunities are rare. That’s exactly why we were excited when we found an amazing company located in Manchester, UK. This was our first credit line in the space that generated a double digit return with very strong (all invoices were also insured by a third party) and enforceable collateral.
Emerging managers are fund managers/professional investors who already have a solid track record but are still in the early cycle of their professional career – meaning that they don’t have big investors who are backing them up at low cost yet and therefore are more eager to work with private professional investors who can provide capital but at more flexible terms (achieve better returns and having a strong downside protection).”
Chirkov professes that the US is the leading market for this strategy but the competition for quality deals is high. Recognizing the opportunity and acting quickly is paramount. He notes that 2022 will see a major upscale in investment activity in America. There’s far more complexity to making the right agreement than seeking profits.
Nikita relates, “Deal making is not only about one figure that works for both parties such as interest rate or amount of capital, it is all about negotiating and designing a bespoke solution for both parties. Big corporates and banks are reluctant to negotiate as they follow a strict tick-boxes procedure and make their decision based on it. I think the ability to negotiate, to listen to your counterparty and to see beyond the Excel are both essential in private markets and I am proud to say that I have been blessed to work with the amazing people who did a stellar job throughout the years and market cycles.”
With looming inflation in the United States this year, these words from an investment expert like Nikita Chirkov are encouraging. Through the examples of what his team at AFG has achieved by empowering smaller businesses, a positive outcome seems attainable even in more challenging of times. Even more enlightening is that both sides can mutually benefit without the need of either to be the largest in the industry.
Writer: Sharon Howe