🧭 Dojo Compass
Module: Finance, Risk Management and Long-Term Resilience
Focus Area: Capital Raising
Key Issue
How can an SME operating in a high-risk jurisdiction demonstrate to international investors that its actual business risk is materially lower than the risk of the market in which it operates?
MedTech Solutions was a successful healthcare technology and medical equipment services company operating in a Latin American country that international investors generally regarded as a high-risk jurisdiction.
The company was profitable, growing and seeking a significant investment to expand into neighboring countries.
When MedTech approached several international investors, the initial reaction was positive.
Investors liked the business.
They liked the growth opportunity.
They liked the management team.
But they did not like the valuation.
The investors’ initial proposals valued the company at approximately 5–6 times EBITDA, substantially below management’s expectations.
The principal explanation was country risk.
Investors pointed to currency volatility, political uncertainty, changing healthcare regulation, relatively high interest rates and the limited number of comparable transactions in the country.
Management initially responded by emphasizing the quality of the company.
The investors remained unconvinced.
Eventually management realized that it was trying to win the wrong argument.
The issue was not whether the country was risky.
The issue was:
How much of that country risk actually existed in MedTech’s business?
That question changed the fundraising strategy.
Facts
The Company
MedTech Solutions had operated for approximately 15 years, providing specialized medical equipment, diagnostic technology and related maintenance services to hospitals, clinics and healthcare networks.
It had approximately 150 employees and generated annual EBITDA of approximately US$14 million on revenue of approximately US$70 million.
The company had several important characteristics:
- strong relationships with major private hospitals;
- recurring maintenance and service revenue;
- specialized technical expertise;
- regulatory registrations and certifications;
- highly trained technical employees;
- long-term customer relationships;
- strong customer retention;
- relatively high margins;
- an established installed base of equipment;
- growing operations outside its home market.
Management was seeking approximately US$25 million of growth capital.
The capital would finance expansion into three neighboring countries, development of a new technology platform and expansion of its service organization.
The Initial Investor View
The international investors saw an attractive company but began their analysis with a significant country-risk adjustment.
They were concerned about:
- currency depreciation;
- political changes;
- healthcare regulation;
- government involvement in healthcare procurement;
- local interest rates;
- capital repatriation;
- customer payment risk;
- limited exit comparables.
One investor’s initial valuation was approximately US$70 million.
Management believed the business was worth closer to US$105–115 million.
The gap was large enough that the transaction risked failing.
Management initially responded by emphasizing the company’s future.
It presented:
- its growth projections;
- new products;
- geographic expansion;
- market growth;
- customer pipeline;
- management experience.
The investors largely agreed with the projections.
But the valuation remained low.
Management eventually recognized that the investors’ concern was not principally about growth.
It was about risk.
The Risk Review
Management therefore stopped preparing arguments about why the company was attractive and began preparing evidence about why the company was less risky than its location suggested.
The company identified six major categories of perceived country risk.
1. Currency Risk
The country’s currency had experienced substantial volatility.
At first glance, this appeared to create significant risk for MedTech.
The company’s analysis showed something different.
Approximately 60% of its revenue was either denominated in U.S. dollars or contractually adjusted for exchange-rate movements.
A substantial portion of equipment purchases was also dollar-denominated.
The company therefore had a natural partial hedge.
More importantly, management examined its actual historical performance.
During several periods of significant currency depreciation, the company’s EBITDA margin had remained broadly stable.
Management could therefore demonstrate:
Currency volatility → significant country risk
but:
MedTech exposure → substantially hedged
and:
Historical evidence → margins remained resilient.
The distinction was important.
2. Economic Risk
Investors also assumed that a downturn in the local economy would materially affect MedTech.
Historical data suggested otherwise.
A significant portion of the company’s revenue came from essential healthcare services.
Hospitals could postpone certain capital expenditures, but they could not simply stop maintaining critical diagnostic and medical equipment.
MedTech had therefore developed a substantial recurring service business.
Approximately 45% of revenue came from maintenance, servicing and other recurring activities.
During a previous economic downturn, equipment sales declined significantly.
Service revenue remained comparatively stable.
The company’s business model therefore provided an element of defensive protection that was not visible in the country’s headline economic statistics.
3. Customer Risk
Investors were concerned about local customer credit quality.
Again, management examined the actual customer base.
MedTech’s customers included major private hospital groups, international healthcare organizations and large regional clinics.
Although the company had some customer concentration, the largest customers generally had substantial financial resources and established payment histories.
Customer retention exceeded 90%.
Many customer relationships had lasted more than seven years.
The company therefore concluded that:
“Local healthcare market” did not mean “high customer credit risk.”
The actual customer portfolio was materially stronger than the market average.
4. Regulatory Risk
Healthcare regulation was another obvious concern.
The country had relatively complex regulatory requirements.
Management’s analysis revealed that this was both a risk and an advantage.
MedTech had spent more than a decade developing regulatory expertise.
It had obtained and maintained numerous product registrations and certifications.
New competitors frequently required significant time to navigate the regulatory system.
International competitors entering the country therefore faced a substantial learning curve.
What investors initially saw as regulatory complexity was partly a barrier to entry.
MedTech had converted familiarity with the regulatory environment into competitive capability.
5. Operating Risk
The company also examined supply-chain risk.
MedTech sourced equipment and components from multiple international suppliers.
No single supplier represented a critical dependency.
The company had also built technical capabilities allowing it to maintain and repair much of the installed equipment locally.
During a previous international supply disruption, competitors experienced lengthy delays.
MedTech was able to continue servicing its installed base.
The company therefore discovered that its local technical infrastructure was not merely a cost center.
It was a risk-insulation asset.
6. Financing Risk
Finally, management examined interest-rate and financing risk.
The company had historically maintained relatively conservative leverage.
It generated substantial operating cash flow and had avoided depending on continuous refinancing.
This was significant because high local interest rates represented a major concern for international investors.
MedTech could demonstrate that it had already operated through periods of extremely high domestic interest rates without experiencing a liquidity crisis.
Again, historical performance provided evidence that the company was not simply exposed to the country’s average financing risk.
Benchmarking the Business
The most important part of the analysis came next.
Management did not simply compare MedTech with local competitors.
It benchmarked the company against:
- companies in its domestic market;
- comparable businesses in other emerging markets; and
- comparable healthcare technology and services companies in developed markets.
The results surprised management.
MedTech was not merely outperforming local competitors.
On several important metrics, it was performing at levels comparable to established companies in developed markets.
| Metric | MedTech | Emerging-Market Peers | Developed-Market Peers |
|---|---|---|---|
| EBITDA Margin | ~20% | 13–17% | 17–21% |
| Revenue Growth | ~10% | 6–9% | 6–9% |
| Customer Retention | 90%+ | 80–90% | 88–96% |
| ROIC | ~16% | 10–14% | 13–18% |
| Recurring Revenue | ~45% | 20–35% | 35–50% |
| Net Debt / EBITDA | ~1.2x | 1.8–2.5x | 1.4–2.0x |
The company was therefore able to make a much stronger argument.
It was not claiming:
“Our country is less risky than you think.”
It was demonstrating:
“Our business has characteristics and historical performance that make it materially less risky than the average business in our country—and in several respects comparable to businesses operating in developed markets.”
That was a much more credible proposition.
Solution
1. Accept the Country Risk
MedTech deliberately stopped trying to persuade investors that the country was safe.
It wasn’t.
There was currency volatility.
There was political uncertainty.
There was regulatory complexity.
There were financing challenges.
Management accepted these facts.
It then separated them from the actual business.
2. Build a Market-to-Company Risk Bridge
The company created a new analytical framework:
Market Risk → Company Exposure → Mitigation → Historical Evidence → Residual Risk
For example:
Currency risk
→ Significant national currency volatility
→ 60% of revenue dollar-linked or exchange-rate adjusted
→ Natural hedge through dollar-linked purchases
→ Stable historical margins during major currency movements
→ Moderate residual exposure
The same analysis was performed for economic, customer, regulatory, supply-chain and financing risks.
This became one of the central components of the investment presentation.
3. Use Historical Stress Periods as Evidence
Rather than merely presenting five-year growth projections, management identified periods when the country had experienced significant stress.
For each period it showed:
- revenue;
- EBITDA margin;
- cash generation;
- customer retention;
- working capital;
- leverage;
- pricing;
- service revenue;
- export revenue.
The result was effectively a series of natural experiments.
Investors could see how the business actually behaved when the risks they were worried about materialized.
This was considerably more persuasive than management assurances.
4. Reframe Local Capabilities
The company also changed the way it described several capabilities.
Regulatory expertise became a barrier to entry.
Local technical infrastructure became a supply-chain risk mitigant.
Long-term hospital relationships became a revenue-stability asset.
Recurring service contracts became a defensive revenue component.
Dollar-linked revenues became a currency-risk mitigant.
Conservative leverage became a financing-risk buffer.
The same facts had always existed.
What changed was their interpretation.
5. Demonstrate International-Quality Performance
The company then added a new section to its investor materials:
“How MedTech Performs Against International Benchmarks”
The purpose was not to suggest that the company had eliminated country risk.
It was to demonstrate that the economic quality of the business was already comparable with businesses operating in much safer jurisdictions.
This distinction became central to the valuation discussion.
6. Target Investors Capable of Understanding the Evidence
MedTech also changed its investor strategy.
It expanded its search beyond generalist international funds to include:
- healthcare-focused growth investors;
- emerging-market specialists;
- international healthcare companies;
- investors with existing Latin American operations;
- regional investment groups.
The objective was not simply to find an investor willing to pay more.
It was to find investors capable of understanding the company’s actual risk profile.
Outcome
The revised investment materials produced a substantial change in investor discussions.
Some investors continued to apply significant country discounts.
Management accepted that these investors were unlikely to be the right partners.
Other investors, however, conducted deeper diligence.
One international healthcare investor concluded that MedTech’s effective risk exposure was materially lower than the country’s headline risk profile.
Its revised valuation was approximately US$95 million.
A second investor reached a valuation of approximately US$100 million.
Ultimately, MedTech secured its US$25 million growth investment at a valuation substantially above the initial proposals.
The most important change was not simply the higher valuation.
The investor’s investment committee explicitly concluded that MedTech’s historical performance, recurring revenue, customer quality, conservative financing and operational capabilities materially reduced its effective country exposure.
The company’s valuation had changed because the investor’s understanding of its risk had changed.
Management also gained something unexpected from the process.
The risk analysis identified several areas where the company could become even more resilient:
- increasing export revenue;
- further matching revenues and costs by currency;
- increasing recurring service revenue;
- maintaining conservative leverage;
- broadening supplier relationships.
The fundraising process therefore became a strategic exercise rather than simply a financing exercise.
Key Takeaways
1. Country Risk Is Not Company Risk
An investor may reasonably begin with a country-level risk assessment.
But the relevant question for valuation is:
How much of that risk actually reaches the company and its shareholders?
2. Historical Performance Can Be a Risk Dataset
Past performance is usually presented as evidence of growth and profitability.
It can also provide evidence of risk resilience.
How did margins behave during currency depreciation?
How did customers behave during recession?
How did cash flow behave during periods of high interest rates?
These questions can provide much stronger evidence than management assurances.
3. Benchmark Against International Peers
An emerging-market company should not assume that its natural benchmark is another company in the same country.
If its margins, returns, customer retention and recurring revenues compare favorably with developed-market businesses, that evidence can materially change an investor’s perception of the business.
4. Risk Management Can Become Competitive Advantage
MedTech’s regulatory knowledge, customer relationships, technical infrastructure and supply-chain capabilities had been developed partly because of the complexity of its market.
Those capabilities did more than mitigate risk.
They created barriers to entry.
5. Look for Risk Insulation Assets
A company should actively identify characteristics that reduce its exposure to market risk.
These might include:
- foreign revenues;
- recurring contracts;
- strong customers;
- diversified suppliers;
- conservative leverage;
- international operations;
- pricing power;
- regulatory expertise;
- proprietary technology;
- local operating knowledge.
These characteristics can have economic value precisely because they alter the company’s risk profile.
6. Show What Happened When the Risk Actually Occurred
This may be the most powerful lesson.
If an investor is worried about currency volatility, show what happened during the last currency crisis.
If the investor is worried about recession, show what happened during the last recession.
If it is worried about supply disruption, show how the company performed during the last disruption.
The company’s history can become the evidence for its investment thesis.
7. Do Not Try to Make the Country Look Safer
This is an important distinction.
The company does not need to win an argument about whether its country is high risk.
It needs to demonstrate that its exposure to those risks is different from the market average.
That is a much easier and more credible argument.
8. Investor Selection and Valuation Are Connected
Different investors will interpret the same facts differently.
A generalist investor may see regulatory complexity.
A healthcare specialist may see a barrier to entry.
A generalist may see currency risk.
An international healthcare company may see an attractive regional platform.
The best investor is therefore not necessarily the investor with the highest initial valuation.
It may be the investor best able to understand the company’s economics.
9. The Fundamental Question
The fundraising team should ultimately ask:
“What would an investor believe about our company if it knew nothing about our country?”
Then ask:
“Which of those characteristics does the country-risk analysis obscure?”
The objective is to make those characteristics visible.
10. The Valuation Opportunity
MedTech did not create value by arguing that country risk was irrelevant.
It created value by demonstrating that:
Country Risk ≠ Company Exposure ≠ Residual Investment Risk.
That distinction allowed investors to move from a broad market assumption toward a company-specific assessment.
And that is ultimately what good valuation analysis should do.
The company did not convince investors that its market was safe. It convinced them that the company had learned how to operate successfully within an unsafe market.
That was the difference between being valued as an average company in a high-risk jurisdiction and being valued as a high-quality company that happened to operate there.
Case Study Note
The case studies published by Business Warrior’s Dojo are intended primarily as tools for learning, discussion, and analysis.
They may be based on real business situations, publicly available case studies, professional experiences, or entirely hypothetical scenarios. In some cases, names and identifying details have been changed to preserve confidentiality. In others, facts, circumstances, timelines, or outcomes may have been substantially modified, combined, or simplified to better illustrate particular business issues or support discussion. Some case studies are entirely fictional and have been developed solely for educational purposes.
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