By: Chris at www.CapitalistExploits.at [4]
I've just gotten off the phone with a gentleman who runs a radio show dedicated to entrepreneurs. He reached out to us as he thought it'd be interesting speaking with me, as an entrepreneur, and as an Angel investing in entrepreneurs.
He wanted to know what we [5] look for in a company that is pitching to us. He wanted to know what type of product or service we'd be interested in. These seem like reasonable questions and while we do have certain industries that we like more than others, the answer I gave was that at the end of the day I don't really care about the product half as much as I care about the people.
If you're an entrepreneur pitching your deal to me know this: I care about how and why YOU will make your product/service work, and how it is going to make you and I a lot of money.
Last time I checked, products don't make companies succeed and thus enrich early investors..it's PEOPLE who do so.
I was also asked about the most important element or characteristic an entrepreneur needs to have for me to get interested. My answer was plain and simple: passion.
In a recent post about passion [6] I said the following:
Passion is the single fastest way to spur yourself to massive success. This is what makes it is possible to get up early, stay up late, remain inspired and engaged and to forgo other pleasures. It’s what keeps you going when from the outside looking in, the decision appears foolish.
So, I'm looking for PEOPLE to invest in. People with PASSION.
I'd like to clarify this answer somewhat. Passion needn't be centered around a product or service. Is Richard Branson a passionate guy? Hell yeah. But hang on, you might say, Virgin is involved in multiple business sectors. That's exactly my point! This is a businessman who is passionate about business. Heck, I'm passionate about business. I'm passionate about multiple businesses, about doing the deals, about negotiating, structuring and so forth. I love business... Period. I'm not necessarily passionate about that latest product launch. However, I AM passionate about the business case for the product launch!
Similarly, I look for business owners that have a skill and a passion for business. Loving your new widget and at the same time having no clue how to market, distribute and sell that widget is worthless to me, and it's equally worthless to you. Implementation is everything.
In the article referenced above I also said:
In other words, typically the "Unicorns" come from passion. What are unicorns? They are the investments that run thousands or tens of thousands of percent… Companies like Uber, Facebook, LinkedIn, The Body Shop… They are investments where a $10,000 stake changes your life, and your kids', and grandkids' lives…
Passion, together with a sound business mind, is where the cocktail mix gets heady.
I was gratified when a member of our team sent me a link to an interview with Daymond John [7]. What caught my eye was the following:
BI: Does it come down to the person selling themselves more than their product? If you don't like a person, you're not going to want to work with them?
DJ: A hundred-and-twenty percent. We're not investing in companies. We're investing in people. There's nothing that we've seen, that you will ever see, that is brand new. It's always going to be a new form of delivery or a new angle on it. Instead of working in seven minutes it works in six. So it's not going to be what you like. You are going to have to potentially talk to the person on the other side of that pitch every day for the next 20 years. Can you deal with that person?
Daymond brings up a very good point. He's investing in people. The product is not as important to him. Obviously I agree.
Now that we've determined we're after passionate, driven people I think it's definitely worth mentioning that finding an industry, country and/or sector that is ripe for investment greatly reduces investment risk. It reduces investment risk simply because it decreases business risk.
What am I talking about?
I'm talking about macroeconomic factors. I'm talking about geopolitical factors and I'm talking about large fundamental trends that are shaping up. Technology adoption in emerging markets is one such trend. Favourable demographics in South East Asia is another one. Rural to urban migration in most emerging markets is yet another one. On a more granular scale I previously spoke about coconuts [8].
What sort of growth am I talking about?
Through a (still) ongoing due diligence process, where we thoroughly researched a business in the coconut water space, we found some significant opportunities in the sector. This meant that any investment we potentially made was grounded in an incredible opportunity based on supply and demand and real economic numbers.
The trick then is to find a passionate, smart business person that can execute on such an opportunity. Mix one part incredible opportunity with one part great management team with an ability to execute and you've just reduced your investment risk substantially.
Nothing is ever guaranteed, especially in early-stage private equity. If I've learned nothing else, THAT is one lesson I've DEFINITELY learned. You need to learn to eliminate risk at every possible opportunity.
So there you have it... Two ways of eliminating risk are by identifying those passionate founders/managers, and finding a sector with strong demographic/economic tail winds behind it.
- Chris
"Maybe the bike is more dangerous, but the passion for the car for me is second to the bike." - Valentino Rossi