Investors and Their Roles

Tough Things First

No matter the size of the investment or the investor group, cash infusions to boost your company will come with strings. In this Tough Things First podcast, offers some thoughts on how it works and what to expect.

---

Rob Artigo: I recently read that Applied Digital, it’s a data center operator, their shares recently had soared like 65%. They said they would receive $160 million in financing from a group of investors. That would be including investment from Nvidia. I use Nvidia products, I like it. It’s in my computer. It’s good for digital editing, and audio, and that sort of thing, so I’m a big fan, but where I’m going with this topic here is part of the investment group is a real estate firm called Related Companies. I kind of think like, “Okay. You got Nvidia, makes sense for the type of company that Applied Digital is, but then there’s also an outside firm, this real estate investment firm that’s involved.” I think, “Wow, it seems like there’s not synergy there Nvidia and the investment firm would expect something out of the deal.”

Rob Artigo: Let’s talk about what big investors in companies like your company, Micrel, which you ran for more than 37 years, what you deal with when people are coming in, and who want to participate and get a piece of the pie, and that sort of thing. I mean, you’ve seen it, you’ve participated in it. Do investors, are they just looking for a little cash or are they looking for influence and sometimes ownership, a little bit of a piece of the action ownership-wise?

Ray Zinn: Well, most of the time, depending again what their role is with the company, if it’s strictly for an investment, then they’re just putting money in and hoping that, at some point down the road, the company is able to then repay that investment many times over, whereas others like venture capital… I’m not sure maybe even Nvidia would want to put somebody on the board so they can monitor their investment real time, because if you’re just investing, then you don’t get regular financial reports and so forth. But if you’re on the board and you’re able to have a regular influence with the company, then you can monitor your investment a little closer, so I’m not sure how much money Nvidia put in or that real estate company.

But in the case of Nvidia, there may be some synergy there because of the technology that Digital has. The real estate company may be just trying to diversify from real estate into some more technology, because Nvidia has had an extremely fast growth in the last couple of years, and maybe they’re just wanting to catch that wave and benefit from that investment. Again, without knowing what the role of those different individuals are, companies are, it’s hard to say where their emphasis is. In the case of Nvidia, it’s probably more synergy, whereas in the other, it might be just they’re wanting to diversify their investment portfolio.

Rob Artigo: Is it fair to say that the level of investment is going to be oftentimes commensurate to what the level of interest is going to be? In other words, I can buy stock. I don’t own any stock Nvidia or this other company or whatever, so I don’t know… I don’t have any of those things, but I can invest as an individual investor by buying a share. Just get one share. That’s one level of investment, and it’s completely removed from the activity of the company. But if I get into the mid-range, I’m in the couple of million dollars in something, and then the next level, it goes up from there. Eventually, the higher end, you’re going to get the people who want to have more influence and have a seat on the board, your guy who started Micrel without venture cap.

Ray Zinn: We’re covering a whole lot of ground here on this subject, so I’m not sure how we want to tie this up in a neat bow, but you’ll have these companies that their whole purpose is to buy a large percentage of the company and then be able to either get rid of the current leadership or to change the direction of the company.

Rob Artigo: As a CEO, I would want to be aware of the fact that it’s not just a one-size-fits-all relationship and that there are things that I need to watch out for if I… I have to make sure that what I’m doing is good for the company and not just assume that it’s all going to work out. Micrel didn’t have a lot of this, but yet you’ve been in the business world a long time. Are you fond of that relationship when you have to deal with a board that you have to work new relationships with?

Ray Zinn: Well, if you’re a public company and then they file a 13D, they can come in and buy once they buy a certain percentage of your company. If they’re one of those adversarial investors, then they can… If they have enough shares, they can dictate how you run your company effectively. Again, if you’re a public company, you’re stuck with what the investors want to do with regard to that dollar they want to spend in your company. If you’re a private company, you have a similar problem. Most of these companies, like Nvidia or this other real estate company, depending again how much money they’re putting in, they probably want a see it on the board so they can monitor that investment.

Rob Artigo: Thanks, Ray. As always, you could reach out to raise in with your questions at toughthingsfirst.com. Continue your education and the conversation with all the podcasts, blogs, links to information about Ray’s books. Tough Things First, of course, you always have to get that one, and then the other books, the series, the Zen of Zinn 1, 2, and 3. Remember, Essential Leadership is coming up. We want you to be focused on and preparing for that. Take pre-orders or whatever we can do to get you interested. Thanks again, Ray.

Ray Zinn:

Thanks, Rob.