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The Flow of MoneyHigh Risk, High Reward
Written by Jay Ji | Published. 2020.08.14 09:04 | Count : 171

The term “investment” contains so much “theory” it is sometimes difficult for students not only to comprehend but visualize such concepts. Teachers commonly tie in material in relation to history lessons as well. In the United States, the period from WWI until the Great Depression is often highlighted when explaining things like the stock market. However, for a visual learner like myself, it was always easy to memorize the what but much more difficult to fully understand the why of things like the stock market and investment. As a minor who relies on his parents, I became curious about how investment decisions are made.

The majority of the world runs on a capitalistic global economy. There is a clear divide between the public and private sectors, which means a nation’s trade and industry is controlled by private owners for profit or benefit. If financial gain is the goal, what happens when you are sitting on a million-dollar idea without any means to invest in it? The likes of Mark Zuckerberg, Bill Gates, and Elon Musk would never have been able expand and advance their businesses to such heights without outside investments.

[Interviewing Jun Hong, the vice president of ‘Red Badge Pacific.’ Photo courtesy of Kevin Kim]

Initial public offerings are a way for companies to put themselves on stock markets and seek the public’s help for their hopes of expansion. Companies can collect funds to grow their businesses, and investors can take a share of the profits. But did you know that there are actually different kinds of investments? One can see why certain companies are able to attract so much attention via their public offerings through outlets such as the media, but I wondered, “What happens to companies with good ideas that people are not aware of?”

[Interviewing Jun Hong, the vice president of ‘Red Badge Pacific.’ Photo courtesy of Kevin Kim]

As I dug deeper into this question I soon realized there are also various types of investors. For startups, they can appeal to angel investors and venture capitalists. The only difference between venture capitalists and angel investors are at which stage they enter with their investments. Venture capitalists invest after a company has shown a significant amount of revenue, while angel investors deal with businesses who are past the initial stages of financing but not yet ready to turn to venture capitalists. 

Angel investors invest in earlier stages they focus on factors such as the company founder’s background, and if they can actually trust the company’s ideas and values. On the other hand, venture capitalists help ramp up the expansion and actual scale of these startups.  I was fortunate enough to set up an interview with the Vice President of Red Badge Pacific, Jun Hong.

First and foremost, I was eager to know the ‘purpose’ of venture capitalist investments.  To my question, Jun replied, “everyone should have different purpose however high ROI(return on investment) is common objective for all investors, however from a venture capitalistic perspective, our investment is to identify and invest in early stage companies, and help the company grow, while generating healthy return.” Further I asked where the initial funding comes from, he responded, “the source of capital for VC(venture capitalists) are diverse, it could be from a single high net worth individual to institutions such as banks, pension funds or even corporates that wishes to diversify its revenue streams”.
  
Throughout the interview I’ve also learned that for each fund there is a designated IRR (Internal Rate of Return) for our investors averaging at 5-7%. “If we can get a return of 5-7% annually for our funds, it would be counted as not failing” said Jun.  Furthermore, a venture capital investment project usually has an 8-year cycle.  Further to note Jun added, “8-year maturity date is set on contract, however we exit most of our investments before that, whenever our projected ROI is successfully accomplished.  However, it is essential for us VCs to maintain good relationships with founders, because if they have been successful with their past startup, we would love to be given the opportunity to invest in their next venture too”. 

My dream to one day become an entrepreneur led me to study how actual businesses attract investments in different stages of business. Throughout my research I also came to realize that with comprehensive practice and understanding of the investment process, one simple idea can even later build up to a public listed company.

  


 






Jay Ji
Year 11 (Grade 10)
Harrow School (Hong Kong)

Jay Ji  student_reporter@dherald.com

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