The VBA Advantage:
The Power of a Focused Approach

Small caps are often perceived as a riskier asset class. This can be true in instances where the wrong investment style is applied to this asset class. It does not, however, have to be this way.

Small-cap investing has many inherent particularities that must be properly addressed by the investment process in order to successfully manage the risk profile of this asset class. This is why a focused approach of strict investment disciplines is necessary to successfully manage small-cap investments.

Careful attention and consideration to the following attributes of small-cap investments are an integral part of the VBA investment process.

1. Management
   While the quality of the management team is a significant factor in the success of any corporation, for a small enterprise, the management team is the key factor. Therefore, due diligence on the management group is crucial to the small-cap investment process.
2. Competitive Strength
   Often the competitive advantage of an earlier stage company is not as visible as that of a more mature corporation. This does not mean that its competitive strength is not as solid. However, since an early stage company has a shorter track record, more due diligence is required to unearth its competitive strength and ascertain its sustainability. For instance, ten years ago, more extensive research would have been required to assess the brand value of Starbucks than to evaluate Coca-Cola's brand.
3. Financial Strength
   In order to ensure that the early stage company has the ability to continue on its growth path, a careful assessment of its financial strength must be performed. This requires detailed long-term forecasting of its ability to generate cash and its capacity to access more financing in relation to the investment and working capital requirements that will arise. Detailed financial models must be developed and constantly maintained. This work can be quite time consuming but is imperative to the risk management process of all small-cap investments.
4. Long-Term Investment Horizon
   Due to the anticipated growth profile inherent to the small-cap asset class, and the short-term volatility in operating performance that may ensue as early stage companies develop, consistent success in small-cap investing requires a long-term approach. With this comes the need for careful long-term forecasting, requiring a greater level of attention and analysis than in short-term forecasting.
5. Liquidity
   Small-cap stocks have limited liquidity. This imposes a long-term investment horizon, as one cannot easily trade in and out of these stocks. It then becomes even more important to conduct careful due diligence to ensure the quality of each company, as getting out of a bad investment can be long and painful.
6. Third-Party Research Availability
   Small-cap companies are often not well followed by the brokerage industry or other third-party sources of investment research. In-house research capabilities and expertise then become a crucial aspect of successful small-cap investing.

This type of research requires discipline and vigilant attention. Our team of professionals is focused everyday on the implementation of the VBA investment process. This is the VBA advantage.