We are entrepreneurial by nature and are always hungry to understand and pursue new ideas and opportunities. Our instincts enable us to invest and encourage others to invest in new business models and ideas that we believe will succeed. This has benefited our investee companies and our investors immensely as our businesses develop new avenues for growth and develop additional moats around their existing business lines.
How we evaluate entrepreneurial ventures?
Entrepreneurial ventures face too much uncertainty to predict their future growth trajectories – growth in number of customers, achieving revenue targets, becoming profitable, etc. Few entrepreneurs correctly anticipate capital requirements and the timeline for such requirements. We believe that detailed planning should be undertaken to help the team think through the key drivers of the venture’s success or failure. Financial models should be used to determine when a venture is going to breakeven – i.e., when does the venture turn cash flow positive. Key areas to focus on are:
People
Is the team able to execute the business plan? What does this team know? Do they work well together? Have they worked well together? Do they know who their customers are? Do they know what their customers want? Do they know their suppliers? Are they known to their customers and their suppliers?
Opportunity
What is the size and growth of the addressable market the team is trying to capture? Is the industry structurally attractive or are their many coffins in place? Is the market growing rapidly as it is easier to obtain a share of a growing market than to fight with entrenched competitors for a share of a mature market? Does this market allow the businesses to make money? Is there value in pricing where we have the ability to buy low and sell high? Observe the balance sheet of the business model – when do suppliers require payment? How demanding are they? How long does it take to acquire a customer? How much capital equipment is required for a dollar of sales? Look for businesses that buy low, sell high, collect early and pay late.
Competition
Who are the existing and potential new competitors? What resources do they control and how does it affect us? How will they respond with pricing and other tactics?
Context
Understand the regulatory, macro-economic, tax, technology and other factors that affect the context. All of these have a big impact on the industry and players.
Risks
True entrepreneurs want to capture all the reward and give all risk to others as they build their businesses. It is essential to be able to harvest the investment. Understand the range of exit options available while avoiding as much risk as possible.
Investors should roll up their sleeves and help the company solve its problems. They know how to recruit, compensate, and motivate team members. Investors should also be familiar with the ins and outs of going public.