Proteak’s IPO Journey, Part II: Lessons Learned
In part one of this conversation, Proteak Founder Hector Bonilla explained why the Mexico-based sustainable timber company decided to go public on the Mexico Stock Exchange. In the second part of this interview, he explains out the initial public offering changed the company in the long-term, and shares advice for social entrepreneurs and their investors seeking a successful financial exit.
NextBillion: Who were your early investors, how did you find that investment, and what exit were these investors looking for? What value did these early investors add to the company besides money?
Bonilla: The Proteak story began with a circle of friends. Our early investors were mostly people that I worked with, or who were clients of mine at the Boston Consulting Group. Our client-base from companies in Monterrey were the ones who made up most of our early investor pool. That’s what I meant when I said you have to start building the IPO years in advance. It doesn’t happen overnight. I had to build a reputation first; the market has to learn that you are someone that everyone trusts.
Most of these early investors weren’t looking for any exit. Most of them were investing in the long-term so our IPO was actually a surprise to them. It was welcome, but not expected. Very few investors have liquidated their positions because they’re betting in the long-run and this is a business that can create a lot of value in the future.
Finding the first round of investment was easy because lots of people wanted to jump on board, but became more difficult as the company grew.
However, for the next round of investment there’s so much value in showing the new investor that the former investor is a successful person who had faith in your initial idea. It says a lot about the company and makes it much easier to sell the project.
NextBillion: What are the main lessons learned? What words of advice would you offer other companies in planning their exit strategies?
Bonilla: Build your reputation and always know that everything you do builds on this reputation. You need to push today to achieve the things you want in the future.
You need to plan ahead of time if you want an IPO and start taking the steps today. It may be 8-10 years in the future, but most entrepreneurs don’t pay enough attention to the important details of formal accounting and legal infrastructure that’s necessary to prepare your company for a successful IPO.
Along the same line, you need to build your board of directors early on. Proteak has a fantastic board of directors. Our board is so strong that when people see the quality, they understand that we are a high quality company that they want to invest with. Entreprenuers often create a board when they want to pursue an IPO … this is different than building a team for many years who have worked together and built trust. And it will show to investors that it’s ad-hoc.
You need leadership that is OK with change. Companies are meant to change. A company with an owner that controls is the equivalent of a dictatorship. Relinquishing power is what makes you a real businessperson instead of just an employee of your company. No serious investor wants to invest in a company with a leader that is too inflexible and can’t relinquish any control. This is also an important component of reputation-building.
NextBillion: How has being an environmentally-beneficial company affected your process of gaining investment and of growth? Why did you set up your company initially as an environmentally-beneficial company?
Bonilla: There is also more interest these days in building a sustainable company. People are more willing to hear a pitch about a forestry company than a petrochemical company. But in the end, it doesn’t really matter because you need the business. Not many investors will invest without a guarantee for a return. We had both.
We set up our company initially because we were interested in pursuing 2 things: a business in the forestry or agricultural sector, building an enterprise with a commitment to environmental sustainability. We also thought the idea of planting and growing trees was cool.
NextBillion: Has this IPO changed the focus of Proteak’s business? What’s next?
Bonilla: We have always been a company very focused on long-term profits. Before the IPO, we were entirely focused on planting trees and selling them. The problem with this model is you have to wait for the trees to grow. We used the resources from the IPO to start acquiring properties with older trees that we could sell immediately. We are focused on creating cash flow as fast as possible from these investments-hopefully next year.
Essentially, we had to switch our strategy away from an investment and planting company to a commercial and market-driven, short-term profit oriented company. And we are having a lot of success. We recently started a factory in Costa Rica as well as Colombia. These factories will supply teakwood to the US and European market, which we are targeting aggressively.
Our long-term aim is to become the largest tropical forestry company in the Americas. And we’re on our way.