How often have you heard “experienced” investors say they only expect to find one successful investment in 10? It doesn’t sound like very good odds, and is in fact misleading. Adopting a shotgun approach isn’t investing, it’s lazy guessing. We can all apply some sensible common sense to try to separate the “wheat from the chaff”. Here are my key areas to look at:
1. THE PROPOSITION, ITS POTENTIAL AND ITS PROTECTION
It’s easy to get swept up in the hype, without really comprehending what a business is going to do. Don’t let your ego override your common sense or part with money unless you understand the firm. Potential is a question of scalability; is anyone actually going to buy into it or use it in sufficient scale? On protection, I have seen some sad examples of great developments losing to competitors because others can replicate them.
2. THE PEOPLE
I don't believe in star managers or star entrepreneurs. There’s always a talented team producing the stunning success and innovation. Their commitment and combined talent will give a company its strength. If I’m being asked to make a medium-term investment, I expect them to be there alongside me.
How are we going to be able to exit from what could easily still be a private company in several years’ time? Everyone needs to know well in advance what the options are and when they could occur.
4. THE NUMBERS
You may think it strange that I put the numbers second to last. It’s not that they are unimportant, but if all of the above gets my approval, I would expect the numbers to back up the story, rather than be the story.
5. SITTING WITH ME?
There is one more point I see as being crucial – who else is in this with us? Will my voice and influence be heard? It is the People, Product and Potential I want to see. If I can understand these, then there is a greater chance of finding a valuable and viable business opportunity.