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You may have heard the buzzword “alpha” — investment managers like to measure themselves by their alpha. The less experienced they are, the shorter they’ve been in the market, and the fewer books they’ve read about randomness, the more they tend to talk about alpha. Those who invested in Nvidia last year boasted about how large their portfolio’s alpha was. At the same time, if someone is very experienced, has been operating for many years, and consistently achieves exceptional results, they also talk about alpha — just much more subtly and calmly, discussing the parts of their operating model that generate it.
In private markets, despite the fact that these asset classes require real work throughout the entire investment lifecycle (private debt, venture capital, infrastructure, real estate, etc.), a large portion of the “alpha” — the part of returns that separates good managers from average ones — is created at the moment the deal is made (at the very beginning of the long-term investment). Various studies show that investment managers themselves agree that, for example, as much as 70% of venture capital investment returns depends on deal sourcing and securing allocations (a seat at the table), because there is intense competition simply for the opportunity to invest in some of the top startups being built by highly sought-after founders.
In private debt deals, the rule of thumb (simply put — a practical but not precise guideline) is roughly as follows: deal sourcing accounts for about one third of success, deal structuring up to 50%, and the remaining part comes from subsequent monitoring, supervision, recovery experience, and similar activities. Thus, around 70–80% of the value is created during the pre-contract phase. This is a ruthless number, but it illustrates how much the overall outcome depends on business networks, discipline, and the ability to find attractive deals and negotiate them successfully.
This reality also shapes a large part of ROIX’s business strategy. In today’s newsletter, we talk about where we place our focus when working on new deals and where ROIX is heading. Our four principles and four directions will help explain this more clearly.
1. International Expansion
Regardless of the segment, entrepreneurs in the Baltic states are not our competitors but our partners. We admire those who have the ambition to compete beyond the local league, and we are open to various partnerships. Our ambition is not simply to build another successful Lithuanian platform that reaches €5 million in monthly financing volumes, becomes profitable, and continues operating comfortably while planning its growth alongside the market.
Of course, from our own previous experience we understand that stepping beyond the boundaries of the local market is difficult — and financing international expansion is even more difficult.
We are deliberately working to become a partner that is not merely a provider of capital, but one that also brings additional value and a broad network of contacts (lawyers, banks, funds, co-investors, etc.) in the key Western markets where entrepreneurs from our region aim to expand.
International expansion can take many forms: opening new export markets, acquisitions abroad, or direct projects in foreign markets. We want to grow alongside those who are growing, while also proactively seeking investment opportunities abroad that are not of Lithuanian origin.
2. Technologies
We pay special attention to businesses that have a technological component. This does not mean that we are only looking for what is typically called “tech” companies in startup terminology (very fast-growing, highly scalable IT companies and business models).
We take a broader and more practical view of technology. We will most likely not finance unicorns, since they typically do not need our type of financing — but the world of technology certainly does not end there. What interests us most are companies that integrate technology into their value chain:
- Component manufacturers whose products are supplied to other technology companies and integrated into complex systems;
- Businesses that use modern manufacturing technologies and may not produce a technological end product themselves, but are technological in nature because of their production processes;
- Companies that deliver services by implementing technologically advanced solutions for their clients;
- Businesses seeking financing for robotics, digitalization, and broader modernization.
3. Capitalizing on Previous Experience
It would obviously be foolish not to take advantage of the areas where we already have strong experience and expertise, or to artificially try to do something different all the time just for the sake of being different. For this reason, we are currently in advanced negotiations to finance several real estate and infrastructure projects.
Today we are analyzing real estate projects that may not necessarily have an innovation angle in themselves, but are the types of projects where we feel a high level of comfort and see a strong risk–return balance (in sports terms — the routine points from familiar situations that you simply have to collect):
- projects located in rapidly growing or transforming urban districts, where value appreciation may occur due to clustering effects;
- district-scale developments where the project itself includes multiple phases and different functions, creating synergies across the entire development and potentially becoming a larger long-term financing project;
- projects in central locations that, due to current market conditions, require pre-bank financing.
4. We Aim for Baltic Investors to Become the Most Advanced in the EU
ROIX is a space created by investors for investors. We believe that our investors are curious, capable, open to learning, and able to quickly adapt to different investment instruments.
However, when EU statistics show that Lithuanian investors have accumulated less capital in their portfolios than investors in the Czech Republic, Poland, or even Romania — it challenges our own ambitions as well.
When we see how large the gap is between the size of Danish and Finnish funds and capital markets compared with all the Baltic countries combined, we understand the historical reasons. But even if we cannot yet match them in terms of capital size, we believe we should not fall behind in terms of knowledge. And when we hear how many private bankers from Switzerland or Luxembourg have travelled to Eastern Europe trying to attract capital from Lithuania in search of “easy business,” while offering what are often fairly average services and ideas, it becomes clear that they significantly underestimate the competence and potential of our region.
Step by step, we will educate the market and introduce new business segments and new types of financing. We will also try to develop products both for very conservative investors and for those willing to take on greater risk in exchange for a return premium linked to the success of a business or project.
For us, this is not just a business. For us, an investor is not just a buyer of a service.
Benas Poderis, Founder of ROIX
