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Wine industry missing out on investment due to its lack of financial transparency

“Over the past 30 years, venture capital has become a dominant force in the financing of innovative American companies.” — Stanford University Graduate School of Business Research Paper No. 15-5


With few exceptions, the wine industry’s lack of financial transparency has prevented it from benefiting from the venture capital engine that has boosted nearly every other important American business segment.

While some VC investments have been made, they are few, seldom, frequently based on”glamour,”and often poorly placed because of a lack of solid public information about the business and financial environment. That’s reflected in the where the deals and money are going. See chart below:

See related piece: Chinese wine venture capital investments blow away United States efforts which shows that venture investment in just one wine-related company in China is larger than the sum of the six-largest U.S. venture-backed companies combined.

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Venture-funded public companies dominate the top companies

 

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China venture capital fast challenging American dominance – and blowing wine away

As this  Wall Street Journal analysis indicates, venture capital from China is quickly challenging U.S. dominance. What’s more, this article by Wine Industry Insight shows that venture capital investment in Chinese wine companies has totally eclipsed the U.S. wine industry.

 

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U.S. investments, including venture capital have thrived on transparency

“Financial transparency means timely, meaningful and reliable disclosures about a company’s financial performance. Companies need to provide transparent financials to raise capital. Investors need transparent financials to make informed investment decisions.

“Therefore, financial transparency is important not only because it is the bedrock of our financial markets, but also because it is absolutely essential to today’s investors. “– Symposium on Enhancing Financial Transparency, Securities and Exchange Commission.

Undisclosed deals discourage investment

Regardless of whether an investment transaction takes place on an exchange or not, investors are more willing to invest when they have greater understanding of the financial environment, valuation, rates of return,  allied metrics, and the relative safety of the transaction. As for companies looking for capital, they are more likely to accept term sheets if  publicly credible information indicates that the terms are fair.

 

However, undisclosed terms and details which cannot be readily verified by public information from independent third parties fail to offer data for investors looking at entering the wine market. The same holds for companies who know that their business plans need solid data in order to attract capital.

 

In that light, deals with undisclosed terms are counter-productive to both companies and venture capital. Transparency, on the other hand, would encourage increased investment in the wine business and encourage more and better-informed deals at terms that both sides can justifiably consider prudent and fair.

Transparency  = more deals, more capital, smarter transactions

Venture capital’s moves for more transparency reflect its understanding that more complete and publicly available disclosure data attracts both more deals and a larger pool of capital.

 

While venture capital is not yet as transparent as a filing with the SEC, it has a long and continuing record of disclosing many transaction details on web sites, news wires and other venues.

 

This article — VC Transparency Is The New Black –explains many reasons for that move to full disclosure. One of the largest factors is that transparency results in greater credibility among investors and companies seeking investment … and that means that more deals being made. And the deals being made are smarter.

 

The trend to more  and smarter deals has continued as evidenced by this example from a venture capital firm : Transparency and Online Startup Investing.