First Generation entrepreneurs and Multibaggers

A predominant number of the promoters in the multibaggers that we discussed in the section "All multibaggers started with small market caps" were first generation entrepreneurs. Even if they were second or third generation the companies that went up 40 50 or 60 times were all new ventures or start ups as we may call them.

   Tatas

   Birlas

   Ambanis

   Foreign company

Now many would argue that Tata could have been right at the top had they got TCS listed in 1995 but that is precisely the point I am trying to make. A good business house wills never give you something very cheap. A few examples that come to light are:

   Reliance intends to list its retail business once it is established but not today.

   Bharti never made an IPO for its agro business.

   M&M waited all these years to get its technology related business listed.

There is nothing wrong in following this strategy but the concept of trying to make a huge multibagger from an established promoter remains remote and undiscussed.

Established promoters can only give you a 3 to 5 multibagger. If you intend to make a 20 bagger you need to look at the new blood. This is because an established promoter will never sell his shares very cheap. He knows how to extract his pound or even half an pound of flesh. On the other hand the new promoter has no option. He needs money and would raise it irrespective of the valuations that he gets, banks would not finance him nor does he have personal resources to fund the plans.

Before I end just think of another event where people made huge money and some could not. In the early part of 2003 when Mobile Telephony was being introduced Reliance, Tatas, Hutch, Essar and BPL preferred to go alone while Bharti had no option but to come to the public. From the IPO price the stock is up 9 times whereas the Primary beneficiaries of Reliance Infocom have been the promoters and their group companies. Investors should think that real multibaggers will emerge from promoters who have an element of unknown quantity within them.

I think that the difference between established and first generation entrepreneurs is the lack of alternative opportunities. The newer breed of promoters have nothing to lose. As Nandan Nilekani once mentioned that he had started his career with Rs 250 and all he could lose was Rs 250. On the other hand if Ratan Tata were to mess up a big project he could land himself in trouble. They find it  better to take lesser risks and concentrate on existing businesses rather then jump head long into a new venture.

So as Mukesh Ambani admitted during a session at IIM that they missed the software boom because of their preoccupancy with Petrochemicals. Even if they had started software I doubt Investors would have been invited to take a share from the booming new venture.