Using Scalability as a Fundamental for Investment Opportunities

Disclaimer: I am not a financial advisor, and the samples used in this case are not recommendations or financial advice. I suggest performing careful research before investing.

As investors explore new forms of businesses entering markets through IPOs, SPACs, uplisting, and so on, it is important to set personal beliefs and values before opening a position in a stock. As the incredibly resourceful StockFam Group likes to reference, it is essential to know what you own and invest in long-term, growth-oriented companies.

While I work with technology startups day-in and day-out and continuously look for young public micro & small-cap 'revolutionary technology' companies to invest in, I often perform research around their ability to scale. It seems like a reasonably simple concept, but I wanted to share my reasoning and passion behind it as I often preach this to like-minded investors. It is not by coincidence that almost every StockFam pick follows similar patterns as those I will describe below.

Before investing in any business, I take quite a few pieces of information into account: the core solution or product, the unique problem it solves, a forward-thinking and competent leadership team, tightly run, well-structured financials, and many other data points.

A significant influence and common theme of my decision-making, which makes the 'disruptive' or 'revolutionary' technology micro-cap space so attractive, is the ability to scale once the product or service is established in its current market. Rather than being "born global," they enter and control one region as a proof of concept, gaining international interest over time, and quickly replicate that service abroad. Finding these businesses at such a stage, before expansion, provides an opportunity to invest at the ground floor with great catalysts ahead.

My best-performing holdings in the past twelve to eighteen months have been growth-driven technology companies with a unique, revolutionary product that solves universal problems and are now in a phase of internationalization.

In 2021, the fourth industrial revolution continues, and technology startups are popping up left and right, improving our daily lives - creating efficiency using artificial intelligence, virtual assistants, and other forms of technology. Many entrepreneurs overlook a "global" or "universal" approach while developing their product or service and limit themselves to an individual market or geography without recognizing it. They solve a problem specific to a location and struggle to expand, attempting to force other markets to use a product they don't demand. Outside of a lack of capital, this is a leading cause for the 90% of startups that fail.

To have a niche product that helps improve daily life in one region is an outstanding achievement, and there are quite a few startups that do not need such expansion. Targeting a massive economy like the USA or China can produce huge revenues on their own. However, they become limited when generating new income streams, so my preference favors businesses with global opportunities.

The common law of economics defines that any business's primary purpose or goal is to maximize profits for its owners or stakeholders while maintaining corporate social responsibility. I always keep this in mind when performing research around a company. Why invest in a company or leadership that limits itself to just one or two markets when you can find technology startups that offer similar value with a global reach?

There are many reasons to focus on such investment opportunities. Internationalization gives startups access to new markets and talent, diversifies their assets, protecting them from risk in one location, and introduces them to foreign investors and investment opportunities.
Hi-Tech Startups & Proven Growth Through Internationalization

In late 2000, four economists at ZEW (Centre for European Economic Research), Oliver Bürgel, Andreas Fier, Georg Licht, and Gordon Murray, began to research how internationalization affects high-tech startups.

Gathering financials from 4,000 high-tech startups across many industries and were younger than ten years, they had obtained sufficient data to understand its general effects. Of the selected companies, 2,000 were in Germany and 2,000 were in the United Kingdom.

Their findings were, as expected, confirmation of remarkable growth in sales. The data had shown the average growth rate of annual sales increase by 13%, taking a 25% growth rate in a domestic market to 38% when implementing international sales. As the researching economists had summarized, "high tech firm founders should be more determinedly international in their vision and strategies from the very start of their business to increase their efforts' economic success."

With such ample growth from internationalization in the year 2000, one can only imagine its effects in 2021. Today's technology and tools for development will empower a business to outperform even the highest growth rates presented in this study's data.

Powerful Examples of Implementing Scalable Technology

Peak Fintech
An impeccable and recent example of scalability is StockFam's very own pick, Peak Fintech (CSE: $PKK OTC: $PKKFF). In recent days they've announced a private placement to raise $20 million for expansion to North America using their AI-based financial institution & SME' match-making' lending program. They've built a digital platform to control risk and have proven their business solution outright in China, even gaining the trust of government officials, financial institutions, and businesses.

Understanding the nature of today's financial lending market for institutions and SMEs, Peak solves a global dilemma. Despite starting in China, a considerable economy with significant lending issues, Peak sees this occurring in plenty of other markets, including North America and India. By gaining the trust of governments like China who have incredibly tight regulations, it becomes easier for them to gain confidence in places with more lenient entry barriers, such as the United States. Of course, other financial technology players have comparable solutions, but none with the same structure, speed of implementation, success rate, and focus of lending issues their technology solves. Peak Fintech is setting itself up to be a significant player in the institution & B2B (business-to-business) lending space across the globe.

Wherever there are open markets that include financial institutions and small & midsize enterprises, there will be demand for Peak's services. That is a rather extensive list, beyond China, North America, and India.

Peak Fintech is USD 2.29 at this moment in time, which is incredibly undervalued for its product and revenue potential in China alone. They are now adding another critical inflection point: preparing expansion to North America, almost instantly multiplying their revenues by repeating the same service in an even bigger economy! (Not to mention the NASDAQ uplisting).

Creating a product or service is a considerable accomplishment for any market but replicating that business with a "plug and play" model worldwide offers substantial potential. I can't thank JJ and the leadership team at Peak Fintech enough for recognizing this and acting before competitors appear.

FansUnite EntertainmentAnother excellent example of a business scaling in a rapidly growing industry is FansUnite Entertainment (CSE: $FANS, OTC: $FUNFF). When people think of sports betting companies, they may think, "Great! Another online casino for me to gamble my money away," but FansUnite is quite different.

FansUnite is not just a sportsbook - they have built a plug-and-play software that becomes the "behind the scenes" technology for sportsbooks (including eSports) and online casinos to include modern games and sports betting tools into their online application. Their iGaming technology allows partners to implement their technology quicker than most of its competitors, immediately providing access to an entirely new set of online gamblers.

A slightly outdated FansUnite investor deck (from November 2020) has the online gambling industry listed at a VERY conservative 150 billion USD. If a sportsbook or sports betting-related business captured just .5% of that market, you're performing incredibly well (750 Million USD for those doing the quick math). Since November 2020, there have been notable movements in Canada, and quite a few states in the US have begun the process of or have completed the legalization of sports gambling, foreseeing rapid growth in the market's value.

With the likes of Scott and Darius, the terrific leadership team continues to deliver partnership after partnership that enables them to gain a 'piece of the pie.' They've now committed to servicing Canada, the UK, Malta, the US, and many other locations using B2B and B2C (business-to-consumer) based partnerships, the majority of which have transpired in the past year and have shown no signs of slowing down.

*Before the rapid period of international growth, $FUNFF (OTC in the US) sat around 20 cents…once scaling internationally began, it hit a new high around $1.80 within 5-6 months…talk about an inflection point of expansion.

They offer their technology as a service, receiving recurring payments from their partners, also collecting a percentage of each profit on the implemented games. Furthermore, the B2C service, through acquisitions and developments like McBookie, provides a direct platform and application for customers to gamble with FansUnite. The potential revenue growth is endless, with legalization occurring throughout the world and the ease of partnering with or acquiring sportsbooks in each region.

Summary

Entering your "home turf" with a new product is hard enough. Again, roughly 90% of startups fail. Producing innovative technology requires a unique problem that needs to be solved, a potential customer base that is willing to learn and adapt, plenty of capital, a strong core team, attractive marketing, speedy operations, and must meet an abundance of other requirements.

Of the 10% who remain, few go public and internationalize with approved regulations, legalizations, etc. It is a daunting task and takes time, effort, and capital, to adapt the product to its new location, but you'll see how this separates a winner from the pack. Entering a completely new environment with a technology that hasn't been seen before and has no established competing entities, allows a company to grow its revenue projections in multiples from the day it launches.

As I wrap things up, I'd like to thank you for taking the time to read and hope this helps even just one reader narrow down their list of investment opportunities in 'speculative' technology stocks. And for those of you who are brave enough to create a startup or look to do so in the future, please keep the "Think big, Think global" idea in mind.

I'd also like to take a second to shoutout StockFam. It's a lively group, where we talk about proper investment fundamentals, live updates around our picks and markets, have quite a few laughs, and provide no fluff whatsoever. It is an all-in-one resource for all market and economics discussion, stock picks, due diligence, and more with over 5,000 investors!

If you'd like to follow me on Twitter, please feel free! Until next time!

Thank you again for reading.

Derek Morgen
Twitter -  @dmo_09

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Citation:

Bürgel, Oliver; Fier, Andreas; Licht, Georg; Murray, Gordon (2000) : Internationalisation of high-tech start-ups and fast growth-evidence for UK and Germany, ZEW Discussion Papers, No. 00-35, Zentrum für Europäische Wirtschaftsforschung (ZEW), Mannheim

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