Fast Five Friday: The £9.25B dilution that made everyone richer

Hi,

Welcome to Bankrolling Tomorrow. Your no-BS guide to capital raise.

Hope you've had a great week. I'm now back to London after a 3 week long trip to Vietnam and Australia, settling back into routine. Spent my weekend wrapping up all the pending work, answering all the emails, and missing the beautiful Aussie sun.

But enough about me. Now, let's chat about capital raises.

This week I broke down one of our favourite grocery stores' capital raise - with a club card strategy so deep Francis Ford Coppola would get confused. But, what's not confusing about Tesco, is their business and capital raise strategy.

Tesco went and did something bold in 2017 - they created 1.5 billion new shares out of thin air to buy this company called Booker. Now, normally when you hear 'massive dilution,' you think 'oh no, shareholders are about to get screwed.' But in this case - Tesco actually made everyone richer.

They basically bought themselves control over how food gets to every corner shop, pub, and restaurant in the UK, then turned around and gave shareholders £9.25 billion back. Imagine diluting people and then paying them more than you ever took. 

Pretty clever move when you think about it.

Besides being great news for shareholders, the real win is that you can take some solid lessons from this playbook and apply them to your business:

1/ Raise money when you don't actually need it
Tesco wasn't broke when they did this - they were doing fine. That's exactly why it worked. When you're desperate, investors can smell it from miles away and suddenly everything costs twice as much.

2/ Just tell people what's happening
Tesco laid out the whole plan upfront - why they’re buying this company, why it makes sense, and when investors will see your money back. No corporate speak, no mystery. People hate being left in the dark more than they hate dilution.

3/ Buy something that actually matters
Forget hiring more staff or getting fancy offices. Tesco bought control over how food moves around the entire country. Big difference. What could you buy that would actually change your position in the market?

4/ Do what you say you're going to do
Sounds simple, but a lot of companies promise the moon and deliver a pebble. Tesco said they'd give shareholders £9.25 billion back. They actually did it. Shocking, I know.

5/ Match your money to your timeline
Tesco picked equity because they were playing a long game. If you need cash next month, get a loan. If you're building something that'll pay off in three years, equity works.

Here’s the thing: dilution only sucks when you do it badly. Do it right, and everyone walks away happy.

Thanks for allowing me into your inbox every week.

If you have any questions, or want to discuss any of my rants on these topics in depth, reply to this email, and I will get back to you ASAP.

Talk soon,

James