As week 2 fold, general feeling among me and my classmates is that time really flies. When we first landed at JFK last week, we thought that three weeks would be very long. However, we already finished 2/3 of our study trip. Regarding this second week, I have learned as much as the first week. However, I would prefer the second week to be more “quantity”, i.e. more company visits, so that we can have more diverse views on consulting and finance professions.
Two themes that I have thought about the most in this week are: 1) How US investors analyze and manage investment in emerging market; 2) Conflicting views on career between an entrepreneur and a consultant/fund manager. In the below section, I would discuss the above two themes together with other related views around three major topics: business, management practice, and career.
Regarding business, US investors such as General Atlantic or Zephyr solve information asymmetry problem with investing in emerging markets by having local team in each country. They also demand much higher IRR, e.g. 40%, for risky countries. When they don’t have local team on the ground, they hire local advisory partners. Hence, it might be an opportunity for me to work as local advisory partner of investors from developed markets when I go back to Vietnam. The second lesson on business is that there are different types of investors for different stages of a company. Although there are some US private equity firms who are willing to take risk in startups in emerging markets, General Atlantic is only interested in companies already reaching the stable-growth phase in order to reduce risk. Zephyr goes even further by targeting emerging markets which are less crowded by investors so that company valuation is still underpriced. They also avoid labor-intensive industries which don’t offer any development opportunity for the investee companies in terms of skills and management practice. I also learn the “disheartening” lesson that for my home country Vietnam, foreign investors will not invest heavily as long as the economy is still dominated by state-owned sector. On the other hand, the session with EY provides two valuable lessons on consulting profession. First, one of the most significant values that EY can offer to their clients is benchmarking with industry average. Another lesson, which is aligned with what we have heard from entrepreneurs in the first week, is that business and funding opportunities came up the most immediately after a financial crisis. To EY, it means there are many consulting and M&A projects for the company.
On the management practice side, I believe that companies such as General Atlantic, Zephyr, and EY have much more sophisticated management skills than startups. This characteristic also raises the debate among our class (Professors, speakers, students) on whether an entrepreneur should acquire some management skills at big companies before starting his own company. One of the reasons why managers from General Atlantic, Zephyr, and EY must have sophisticated skills is because they are in a business of delivering real values to their clients. When investing in a company, they must continuously solve the principal-agent problem in which they have less information about the companies than their managers. To invest and to work in emerging markets, they must also combine knowledge from many disciplines: economics, politics technology, culture, etc. To acquire above skills, they typically follow different career track than that of the entrepreneurs. One common track is to gain the basic knowledge from business school and then develop your analytical skills from top consulting/auditing companies. Regarding investment philosophy, General Atlantic and Zephyr are not passive investors, i.e. they are heavily involved in developing strategy, recruiting talent, and corporate governance of the investee companies. Zephyr manages the investment process very effectively by having local team who meet specific criteria: oversea education/work experience and passion for developing business in their home countries. General Atlantic and Zephyr also distinguish from other fund management companies by developing certain competitive advantages. For example, General Atlantic does not invest in biotech which they have no expertise, while Zephyr invests in emerging markets where they have built deep understanding. Besides, EY and our guest speaker Bela Sandor shared us how consulting practice has adapted to the internet era. Nowadays, consultants don’t have to travel to client ground too often because they can do video conference everywhere. This is considered incremental innovation within consulting practice because it saves consultant’s traveling time and costs to clients. General Atlantic and Zephyr also embraced innovation ideas because they understand how social network and big data will have major impact on the economy. Hence, they are more open to invest in companies in these areas.
Last but not least, the session with Zephyr have both clarifies and reconfirms my recent thoughts on career. As either a corporate employee or an entrepreneur, it is important that you acquire management skills before you move to the next phase of your career, e.g. either working for a bigger company or starting your own business. Developing an area of expertise and building your own brand name while working for a big company will help you a lot in your profession/business. Mr. Thomas from Zephyr also shared an old but always valuable lesson to both professional managers and entrepreneurs: we should build “relative competitive advantage” to ourselves and our startups, i.e. we should venture into areas/businesses that other people have not.
To conclude, I am generally happy with the “quality” of the company visits this week. I am looking forward to next week with six company visits, twice as many as this week’s. Hopefully I can learn more different views than those lessons that I have learnt so far.