Chapter 248: The Cost of Time

After an intense round of negotiations and back-and-forth haggling, the final deal was struck. Jim agreed to invest $4.6 million for a 2% stake in Carter's HT Restaurant Management Company. The premium of $600,000 didn't come without its conditions, although these conditions weren't necessarily bad for Carter:

HT must go public within three years!

Calculating the timeline, it's currently 1980. By 1983, the economic crisis should be nearing its end. At that point, HT's cash flow might not be as explosive as it is now, but once it goes public... The potential earnings would be substantial. Carter could also liquidate some of his shares post-IPO. For Jim, having HT go public would be beneficial too. After all, his total assets currently amounted to only $14 million.

Carter understood well that Jim's $4.6 million investment for a 2% stake wasn't meant for long-term holding. Jim's goal was to wait for the stock value to increase and then cash out for a profit.

"Alright, alright, let's get back to business. Besides these, are there any other financing channels?"

After some playful banter, Carter regained his serious demeanor and pressed on with his questions.

$4.6 million was a significant amount, but for a highway project, it was merely a drop in the bucket. Moreover, Carter didn't intend to continue liquidating his equity.

Among his current assets, HT was the only company with an impressive fundamental outlook. Whether it was the system, revenue performance, or maturity, HT was in excellent shape, which made it valuable! However, no matter how valuable, it couldn't escape the reality that it had only been in existence for three months.

Unlike Jim Rogers, who valued HT at a staggering $200 million, most would estimate it between $80 million to $100 million. Even at that valuation, equity financing wouldn't suffice to cover the highway construction costs.

"There are still a few options: donations, pension fund investments, asset swaps, and venture capital are common financing channels. Donations won't be feasible in Douglas and Pearson, your main strongholds, given the modest wages. Maybe you could try in Columbus, and you might secure some funds, especially from companies involved in import-export trade and logistics, but don't get your hopes too high."

After taking a sip of water to soothe his throat, Jim continued:

"Asset swaps aren't viable due to your limited valuable assets. Focus on seeking investments from pension funds and venture capitalists."

"Are pension funds a good idea because of the stable returns from toll roads? Aren't venture capitalists typically looking to invest in companies?"

"Yes, pension funds aim to prevent the devaluation of the retirement money they manage. Their priority is risk control, followed by profitability," Jim nodded and suggested:

"After returning, visit cities like Columbus and Albany along the route to negotiate. Aim for a secure, capital-preserving toll agreement."

"For example, if the toll period is 20 years, and the total investment is $300 million, assuming an average annual inflation rate of 5%, theoretically, you would need to recover $795 million in 20 years to break even."

"The agreement would state that if the earnings don't reach $795 million by the end of the 20-year period, the toll collection period extends until the investment is recouped. Conversely, if the investment is fully recovered within 20 years, the toll collection ends as agreed. This is just a concept since inflation rates and currency values vary annually. The specific amount would depend on your negotiations."

"Is that feasible? If there's such a guarantee, wouldn't highway investment be risk-free?"

Carter was amazed. He remembered reading articles comparing highway construction in the US and China and explaining why many US highways lack toll booths.

If he recalled correctly, the articles mentioned that most US highways were government-funded, essentially using taxpayer money for construction. Afterward, a portion of vehicle and fuel taxes were allocated to the Highway Trust Fund for road maintenance and new road construction.

In China, many highways were funded by private investors, who relied on tolls to recoup their investments.

If US highway construction could offer such a near-guaranteed return, why wouldn't investors be interested?

"Why not? They'd be eager for you to complete the road! From an economic standpoint, it seems risk-free, but if you consider the time factor?"

"If the road underperforms, it could take 100, 150 years to break even through tolls. What's the point then? That money is as good as lost! There are countless better ways to use such funds," Jim smiled, patting Carter's shoulder, as if casually chatting while offering crucial insights:

"In any investment, we must consider the payback period, which is the cost of time. In many cases, the value of time cost exceeds the apparent monetary value."

"Let me give you an example. Say there are two businesses: one yields a 40% annual profit for ten years, dropping to 20% after ten years, and then to 5% after twenty years. Another business consistently yields 2% annually for a hundred years. Which would you choose?"

In ten years, the first business generates a 40% profit; in the next ten years, 20%; and then 5%. Assuming an initial investment of $1 million, it would yield approximately $35 million in twenty years.

The other business, a century-old stable venture, would result in a mere $724,000 after a hundred years.

"I get it! Even if the first business only lasts twenty years, the capital can be reinvested in new ventures afterwards!"

"Exactly! That's the point. Highway investments, in reality, I wouldn't recommend seeking venture capital. They would invest in your company, DOG Realty, which is handling the project. But DOG Realty has only two projects: an unlaunched highway and a residential area."

"The residential area aside, its future is uncertain. The highway project is valuable, but for VCs, the long payback period makes it a waste of time and money."

"But pension funds are different! They need stability, ensuring the invested money can always be recovered and used for paying out pensions."

Following Jim's lead, Carter excitedly chimed in:

"Moreover, pension funds need a steady, sustained disbursement process, similar to this toll road. As long as there are returns to cover their payments and ensure continuous cash flow without breaking the chain, it's a good investment!"