In this week’s reading I was a little confused about the definition of harvesting. I believe Investopedia gave a great definition of this early stage investing fundamental. The website details that “a harvest strategy involves a reduction or a termination of investments in a product, product line, or line of business so that the entities involved can reap—or, harvest—the maximum profits. A harvest strategy is typically employed toward the end of a product’s life cycle when it is determined that further investment will no longer boost product revenue.”
Let’s take a further look at the 7 different methods to harvesting.
1. Walking Harvest – This seemed liked the safest method and one that as an investor I would appreciate. This is a method where cash is being pushed out to the investors upfront and steadily. The business value may seem low but this would not be a business that you would necessarily want to sale.
2. Partial Sale – This option made me think of the old saying “get out while the getting is good.” However I feel that it still leaves a good relationship with the company by selling shares back to management. I do see how this can get sticky if management does not feel like you should leave and in turn purchases at a lower price because of this.
3. Initial Public Offering – Again another saying came to mind “scared money doesn’t make any money”. I feel that large business with great products should actually strive for this method. In most cases you can build more capital and grow the business.
4. Financial Sale – “Make sure your house is in order” because this method of harvest does not always mean that the company will remain intact or management will keep their jobs however this method seams the least complicated in that it is most times a straight forward sale based on the buyers assessment of the company’s cash flow or potential cashflow.
5. Strategic sale – I always say quality over quantity. In this method your buyer is not looking at the numbers as much as possibilities. They know how to run the business, sometimes they may even be someone from inside the company.
6. Chapter 11 – This is a harvest method that I have heard too many times. Bankruptcy seems to be the destiny of many un successful companies. As of late it has been many retail stores one that comes to mind is Toy R’ Us. This once Toy Giant filed for Bankruptcy in 2017 but unlike chapter 7 it leaves a chance to survive. I hear that the Toy Story is making a small reappearance soon with just a few stores.
7. Chapter 7 – wash your hands of the business. This harvest method comes down to one-word failure. There is not a return on investment but only losses that you should count and not devote any further time or capital.
2 Replies to “Harvesting”
Great detail about each harvesting strategy. I too felt like I did not get a complete definition of harvesting in these chapters but through additional research I was able to gain more understanding. Thanks for sharing this definition.
I found that during this chapter that was a constant cricket in my ear telling me that if I fail to plan than you fail. Your post was well written (as always) and I found myself talking out loud during it which means I really liked the ideas it was bringing out of me.