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Редакционный совет:
Зарайский А.А., доктор филологических наук, профессор,
СмирноваТ.В., доктор социологических наук, профессор,
Федорова Ю.В., доктор экономических наук, профессор,
Постюшков А.В., доктор экономических наук, профессор,
Тягунова Л.А., кандидат философских наук, доцент
Отв. ред. А.А. Зарайский

Выпуск № 12(67) (декабрь, 2019). Сайт: http://www.iupr.ru

© Институт управления и социально-экономического развития, 2019

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УДК: 08.00.10
Makhmudov N.M. DSc
professor
department of macroeconomics
TSEU
Avazov N. R.
student
TSEU

INVESTMENT AS A SOURCE OF FINANCING

Annotation: This article discusses the pros and cons of direct investment
and various investors.
Key words: investment, investor, work, group, company, stage, money.

For most investment companies and funds, investing in a non-core business

is a form of direct investment. In fact, they buy not only and not so much in order
to receive part of the current income from ownership of the company's
shareholding, but in order to then resell it. Such investments can provide a return
on the level of 50% per annum. Of course, provided that the object for investment
is selected adequately.
Direct investments are traditionally classified as alternative. Meanwhile, for
many developing economies, for example, China, they act as a leading source of
income, whose annual “capacity” is estimated at hundreds of billions of dollars
(here we are talking primarily about foreign direct investment). Recently, direct
investment has become increasingly popular in our country. According to our data,
almost 40% of company owners are ready to cede a share in the business to a
direct investor.
Direct investments can be used to develop a business, regardless of what
level of development a particular company is at. Now they are perhaps the most
affordable investment tool for most domestic firms. It is worth noting that here we
do not consider venture capital funds, the strategy of which is somewhat different
from that to which the classical private equity funds are oriented.
The main advantage of direct investment is the ability to obtain the funds
necessary for the implementation of a project aimed at business development. At
the same time, not only money is invested in the company, but also intangible
resources - consultations from the side of the investor, his connections, knowledge
and authority. Information that a well-known private equity fund has invested in a
business has a positive effect on the image of the recipient of funds as a business
partner.
Direct investment involves some significant limitations. First, the investor
who has invested in the company expects to return them after receiving a certain
income. Moreover, the return on investment should be at least 30-40% per annum,
for some projects higher requirements may be imposed. The return of funds may

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occur due to the sale of the received share to a strategic investor, its redemption by
management (co-owners of the company) or its sale on the stock market as a result
of IPO.
Secondly, a company attracting a direct investor should be prepared for
significant changes in the management system. This may include a transition to
international financial reporting standards, a change in the structure of the
company in order to increase its transparency, a change in the part of managers (an
investor’s representative or an approved specialist often takes the post of financial
director), and restrictions on strategic decisions (large transactions can be made
only with the consent of investors).
Thirdly, when working with a direct investor, the company should be ready
to undergo a comprehensive legal diligence, financial, technological, and
marketing review process.
If the owners of the company decide to attract a direct investor, they must
assess how ready the company is to start its search. The following points are
important here.
Business plan. A direct investor most often invests not in start-ups, but in a
growing business, which needs additional funds to move to a new stage of
development or to implement a promising project. The description of the direction
of investment of attracted funds does not always have to have the canonical form
of a detailed business plan, sometimes a brief description of the idea is enough.
The investor will still calculate for himself the prospects of the project.
The presence of a qualified management with obvious professional
achievements. This is an important point for many direct investors. Still, they do
not buy the whole business and do not seek to participate in the operational
management of it. They must be sure that the specialists available at the company
will be able to successfully implement the project for which money is allocated.
Status and dynamics of the business - investors prefer to invest in growing
companies. Only in rare cases, they may be interested in the result of overcoming
stagnation or recession.
State of the industry. This factor is not important for all investors, but many
of them prefer to invest in growing markets that have not yet reached saturation.
Owners should immediately decide what share in the business they are
ready to cede to the direct investor. Many investors invest in a company only if
they receive a controlling or blocking stake.
The size of the company is not critical for attracting direct investment.
Many participants in this market invest in small firms whose annual revenue does
not exceed several million dollars. It is desirable that the company does not have
debts and other burdens, had documents confirming ownership of assets, necessary
patents and licenses. Investors most often negatively assess the presence of state
companies or criminal structures among the owners of companies, and the
company's participation in corporate conflicts. It is clear that a claim to the
company by the tax authorities or lawsuits by third parties virtually eliminate the
likelihood of a successful investment.

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 It makes sense to consider two main groups of direct investors - private and
institutional. The former include private individuals (often top managers of large
companies) who are looking for an opportunity to profitably invest available
funds, and the latter include investment groups and private equity funds. They can
be formal (positioning themselves as funds, for example, Baring Vostok Capital
Partners) or informal (actually working as direct investment funds, for example,
Alfa-Eco).
Intermediate positions are held by holdings and groups of companies
diversifying their investment portfolios. On the one hand, such players differ from
individuals in their capabilities and priorities, and on the other hand, direct
investments do not serve as their main activity and are one-time projects.
Working with each of these groups of investors has its advantages and
disadvantages. There are more private investors than funds, by definition, they
often make less stringent requirements on the object of direct investment.
However, the benefits of cooperation with private individuals are not so great -
most often they give only money without additional resources in the form of
knowledge and experience. Institutional investors impose more stringent
requirements on the company that attracts investment, but also provide
incomparably more. If we talk about companies that occasionally act as direct
investors, then their requirements and capabilities are individual.
Each private equity fund has its own requirements. For example, Baring
Vostok Capital Partners, among other things, assumes that the company should be
break-even, the internal rate of return on investments should be at least 40% per
year, the growth in the value of the company should be at least 300%. The FINAM
Investment Holdings Direct Investment Fund is considering proposals for
investing in the high-tech companies sector, in the entertainment industry
companies, in industries characterized by low asset consolidation and high growth
rates, as well as in retail trading companies, primarily operating ones in the
consumer market and having a developed sales network. Almost all investment
funds pay attention to such indicators as company management, profitability,
revenue and profitability.
Sources used:
1. Hayek F. Private Money / Per. from English M .: Institute of Economics,
1998
2. Starodubtseva E.B. Investment Opportunities for Savings: German
Experience and its Application in Russia // Banking Services, 2006
3. Rose Peter S. Banking Management / Per. from English M: Case, 1995
4. Raikhlin E. Fundamentals of economic theory. Financial and monetary
system. M .: Science, 1999

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Israilova D.A., TEACHING WRITING IN A SECONDARY SCHOOL ............. 60
Kadirova Kh., LOVE AS A MORAL VALUE ...................................................... 63
Karimova J., INTERNET AS A RESOURCE FOR ONLINE-LEARNING
ENGLISH................................................................................................................ 66
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THE FORMATION OF PSYCHOLOGICAL CHARACTERISTICS OF
PERSONALITY ..................................................................................................... 72
Makhmudov N. M., Avazov N. R., INVESTMENT AS A SOURCE OF
FINANCING ........................................................................................................... 75
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 ЭЛЕКТРОННОЕ НАУЧНО-ПРАКТИЧЕСКОЕ
ПЕРИОДИЧЕСКОЕ МЕЖДУНАРОДНОЕ ИЗДАНИЕ

«Экономика и социум»

Выпуск № 12(67) 2019

Сайт: http://www.iupr.ru
Издательство: ООО "Институт управления и социально-
экономического развития", Россия, г. Саратов
Дата издания: Декабрь 2019

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