Five tests before a long hold
Over a long holding period, whatever is fragile in a business will be tested, often when credit is scarce. Our diligence therefore concentrates on what could break.
Read Nº 01Venture, wealth & family officeCalgary, Alberta
Look for what breaks first.
Axion Investment Management manages capital from Calgary in venture capital, wealth and asset management, and family office work. Before we commit to holding a business for many years, we put it through five tests. Most opportunities fail at least one.
The five tests
Five questions a holding has to answer.
Every business we expect to hold for many years is put through all five. The detail differs for venture, private and public holdings.
- T1
Cash conversion
The questionDoes the business fund its own growth?
It fails whenGrowth depends on lenders.
- T2
Pricing
The questionCan it raise prices without losing its most important customers?
It fails whenThe customers who matter most would leave.
- T3
Management
The questionAre the operators allocating capital, or only reporting on it?
It fails whenCapital decisions are reported, not made.
- T4
Balance sheet under stress
The questionHow does it hold up if revenue falls by a fifth and stays there for two years?
It fails whenThe business cannot carry that decline.
- T5
Exit assumption
The questionWhat sale price are we assuming? We write it down at the start.
It fails whenMost of the expected return depends on the eventual sale multiple rather than the business.
What we do
Three areas of work, run separately.
Venture capital, wealth and asset management, and family office work differ in horizon, liquidity and the advisers involved.
Venture capital
Held on the company’s timeline, often ten years or more.
Equity in founder-led companies at the early and growth stages, held for many years. Most of our assessment is of the founder: how they handle bad news, how they hire, and whether early customers would buy again.
- Positions
- Few, sized to allow follow-on investment
- Reserves
- Set aside at the first investment and disclosed to founders
Wealth & asset management
Built around what the family spends.
Portfolios of public and private investments held to each client’s investment policy, with objectives set in the client’s own terms: a real return above inflation, a fall in value the family can withstand, and distributions it can rely on.
- Policy
- Ranges agreed in writing before capital is invested
- Benchmarks
- Used to measure results after the fact
Family office
Planned with the next generation in view.
For families with more complicated affairs: one record of everything they own, with investment, philanthropic and succession work coordinated with the family’s own lawyers, accountants and bankers.
- Governance
- Statement of purpose, investment policy and governance charter
- Legal and tax
- Coordinated with the family’s own advisers. Axion does not give legal or tax advice.
To discuss working with us, start with a short note.
Write
inquiries@axionim.com
1122 3 St SE, Calgary. Visits by appointment.