“Large companies tend to have higher turnover among senior managers and look for short-term solutions with growth,” said Shulman. “They are more likely to grow through acquisition. Moreover, compensation and equity holdings are significantly different.”
“We believe that entrepreneurs tend to grow organically and have a clear focus on their business units. Moreover, management of the companies that we invest in tends to hold a large economic stake in their companies,” Shulman added.
In comparison, entrepreneurial firms grow by looking into strategic partnerships and new business platforms. This “organic” expansion allows greater control over products or services. In addition, since organic growth requires minimal borrowing, companies are not as vulnerable to contractions in the credit market.
“Entrepreneurial companies grow in an organic manner and take better advantage of strategic relationships and alliances,” commented Shulman. “The managers focus on ROIC (return on invested capital) rather than revenue growth.”
The groundwork has been laid for a potentially new ETF product. The EntrepreneurShares Fund would translate fairly well into an ETF, said Shulman, and he does see himself managing an ETF of companies with the entrepreneurial spirit sometime in the future; however, Shulman will make the transition carefully since it is not their intention to cannibalize the growth in assets under management for their mutual fund.
The next big ETF might very well hold the next Apple.
Dr. Joel M. Shulman Ph.D., CFA, is the managing director & chief investment officer of EntrepreneurShares, LLC, which operates entrepreneurshares.com. EntrepreneurShares LLC is registered as an investment advisor with the Securities and Exchange Commission. EntrepreneurShares LLC serves as investment sub adviser to the Entrepreneur Series Trust, the EntrepreneurShares Indices, as well as for separate accounts.
Max Chen contributed to this article.