Rob,

I second all that Larry has said concerning risk and risk premiums.  Investors will accept govt bonds returning only 1 to 2% real (the nominal return which includes inflation would be higher naturally) – the value of the bond adjusts, thereby adjusting the return to reflect the risk associated with the investment.  Private equity works in much the same way: share prices adjust to balance risk against expected return.  This of course presumes that market decision making is rational – which it isn’t most of the time.

For the purposes of investing in proas, the vast majority of the market will be somewhere between rationally and irrationally risk averse.  Which means that if you could actively target the passionate investor through crowd funding then it may be worthwhile.  However, in the absence of direct experience with this model I’m not the person to recommend it.  I believe the boating industry is large enough to get a good idea off the ground.

The proa probably faces greater obstacles than an equally lucrative mono or large cat investment.  So I wouldn’t go complicating the investment with a range of offers that don’t necessarily match the investor’s preferences.  I’d firstly delink consumption and investment choices.  A specific or unlimited number of days charter may not match consumption and investment preferences.  What has worked in yacht charter?  Time share.  I can’t say I’m familiar with the models but I’d advise maximizing flexibility and reducing risk.  Risk is reduced when all owners of a boat or fleet share in the income earned across the year rather than all the income from a particular period.  Risk is theoretically reduced by sharing global income.  Productivity, and therefore return, may be higher if return is tied to a particular fleet or craft as this will encourage owners / management to maximise returns.  Risk is also reduced when investors have a stake in a solid asset - the boat.  Getting the business model up and running will increase the resale value of the boat – providing the investor with an exit strategy – both important factors in minimising risk.

Returning to flexibility and consumption choices: owners preferences will change from year to year due to competing demands.  A time share stake should entitle that owner to a pro rata number of days charter.  The question is at what rate?  A hypothetical: 12 owners are each entitled to one month of use per year.  Only one of them takes up the offer, spending a month on the craft and competing in all the best races.  This particular boat happens to be quick on the water but slow in the charter operations (for reasons that remain obscure).  Only 3 months of income were received for the year.  If the owner who chose to use the boat for a month doesn’t pay, then this owner is effectively receiving 1/3 of the annual income.  This maximises that owner’s return yet reduces the return for the other investors.  Imagine a scenario in which 11 of 12 owners wish to use the craft themselves – it would be difficult to attract a rather more pure investor into this investment unless a user pays model is adopted.  So from a pure investment perspective, all customers should pay the same price, notwithstanding the sensible practice of discounting longer charters.  Peak season should be priced higher as should all the top races – subject to demand.

The preceding is an argument for an investor driven model.  It does not rule out the idea that a particular boat could be timeshared by keen sailors in a less business like fashion.  But remember that if 2 owners want to sail the craft on the same day, someone ends up out of pocket if one has to hire another craft where the business model is applied.

With this in mind, my preferred setup of the investment structure would entail regionalised ownership of fleet management.  Whether this should be a corporate, cooperative or collaborative activity would depend upon investor attraction, limiting liability and tax practicalities.  These influences may vary from region to region.  Franchising meets timeshare.

There’s probably no best way to grow a business – other than foresight.  Commonsense dictates that investments become more likely once the business model has some runs on the table.  You’ve already indicated that a fleet will be established in the Atlantic I believe.  It would be great if the deal provided you with some numbers to put in the business model

The thing most in favour of the Bucket List plan: more bang for less bucks.

Regards,

David

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