Why I Don’t Really Care About Your Product


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 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 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. 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.

What sort of growth am I talking about?

Coconut Water Sales

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

What This High-End Escort Can Teach You About Business


At a recent meeting with a VC in Singapore a strangely interesting article Sex is Sex. But Money Is Money. was shared with me. It was written by a 24-year-old ex-New York escort named Svetlana, and I recommend it to entrepreneurs, business owners and investors alike.

Svetlana Z

What I found most fascinating were the business lessons this girl had learned. Prostitution is certainly not what pops into most people’s heads when they think business. It is said, however, to be the oldest “profession”.

Let’s take a look at the lessons from this lady…

Lesson 1: Ongoing capex is necessary to grow your business

This girl realised that she needed to spend money to stand out. She needed to spend money on marketing, clothing, skincare, fitness and so on.

Even if you’re not a businessman, an investor or in fact inclined to think about daily activities from a business-minded perspective, you’ll likely grasp the basic concept that in order to keep your house, your car or your boat in good shape you’ll need to spend some ongoing money on servicing, repairs and maintenance.

If you’re in a profession it’s likely that you need to spend money on keeping relevant via courses, workshops and so forth. Sportsmen need to keep fit in order to perform and businesses need to spend money on keeping relevant, too. This involves, among other things, marketing, updating technology, equipment and education. As discussed before, we live in a dynamic world and it’s very dangerous to think in a linear fashion.

Capex is required to grow an economy too, and from a global macro viewpoint it’s important to watch these trends as investors. This is true whether you’re looking at an entire country, a sector or an individual deal. Capex cannot grow faster than revenues, so the ratio of capex to revenues needs to be watched. This is, of course, how it is relatively easy to see where in the business cycle a country is. Just as revenues ,or more accurately free cash flows historically drive asset prices or valuations, so too increasing revenues will typically drive capex and falling revenues will cause a contraction in Capex.

As an investor in early stage private equity it’s typical to see large capex with little to no revenues, otherwise known as burn rate, but this has a limited time frame and typically a company needs to gain a certain amount of traction during this growth phase in order to begin generating returns on this previously spent capex.

Right now, for example, a concern in global markets is that there is very little capex and it’s been falling. This article from the Economist details more on the numbers and the graph below shows the contraction. In short the revenue growth globally is not telling business owners to increase capex.

Global non-financial capital expenditure

Side thought: Svetlana had one thing in her favour. She lives (or has lived) in NY, which means she is very close to the hose spewing liquidity into the markets. If I was going to sell my body (not that anyone would pay for it) I’d also locate myself as close to the hose pipe as possible.

Lesson 2: Do not neglect the value of uniqueness

Here was an Eastern European girl with no formal education who had little prospects, and subsequently struggled to find a job. She took the fact that she was from Eastern Europe and turned it to her advantage, instead branding herself as an exotic and foreign girl; an advantage since guys would want to hop into bed with and exotic, beautiful young girl, over and above a local girl presumably. This was her IP and she used it to her advantage.

I have a friend, Derek Sivers, who built and sold a very successful business. Derek wrote an article entitled The Philosophy of Great Customer Service about what made his company stand out, and a major reason for its success. One of the critical success points for Derek was that he had a real person answer the phone. In today’s world of automation this is a discerning factor. You need to stand out and provide something unique, valuable and engaging.

Lesson 3: Study the market and position yourself accordingly

Svetlana, the girl in the story, studied her market. She learned that there were customers in all income brackets; she learned what they wanted to hear, what they wanted to see and do, and she positioned accordingly. Whatever your chosen market, it’s not as hard as you think to determine what and where opportunity lies. Study your competition, know your market and you’ll immediately see where gaps exist. I just got off the phone with a good friend and mentor. He just sent me this fact. I’ll just cut and paste it below because I think it’s relevant.

Iran now accounts for approximately 90% of the world production of saffron – $11 gram. Wikipedia on Saffron

I’ll leave those with an imagination to consider this. A massive concentration of supply in anything in one place ALWAYS increases the arbitrage opportunity. Imagine if you really knew this market.

I’ve not looked much deeper into saffron, though. I’m a busy guy, but knowing these things has always proved valuable to me. Why? Because I’m always meeting businessmen, entrepreneurs and financiers from all parts of the world and I never know when I’ll next bump into someone in the business of trading saffron.

Even writing this article may bring out someone who reads this and happens to be in the spice business and will reach out to me and I’ll learn about saffron. I know this because we have the most awesome readers :) Perhaps there is an opportunity there. Perhaps not.

Lesson 4: Being an owner is better than being a worker

This isn’t as simple as it sounds and though I’ve been an entrepreneur and owned and run businesses most of my adult life, the above statement is not necessarily true everywhere, every time. I know business owners who work 7 days a week, earn very little and at the same time I have a few friends earning high six figure salaries who work 9-5 and can go home and switch off. That said, for this girl the cost of operating under an escort service was far too high and running her own operation was far more profitable.

When you look at any industry, obviously the top companies or individual entrepreneurs running those companies are wealthy. It’s business owners who get rich. This is where the asymmetric payoff exists and it’s why private equity historically has been the highest returning asset class. It is the asset class that we dedicate our lives to in our private equity syndicate.

Lesson 5: “Young guys are bad, virgins are awful, young virgins are a nightmare”

Inexperience can be costly. Mistakes are currency and I’m fortunate to have a lot of currency. I think of my mistakes as currency because without it I would not have had success. When I’m investing my capital and vetting deals, however, I don’t want to pay that price. I don’t want more “currency” any more than Svetlana wants young virgins. If virgins are involved in a business, and sometimes they are, I need to see a “grey hair” involved in the company; someone with currency and someone who can help the inexperienced navigate.

Take heed from this girl. Whatever you think of prostitutes she clearly has a head for business, and I personally look for business people like her when vetting deal flow. She could be an ugly old “babushka” and she’d stand out for her business savvy. I have to wonder what damage she could do if she put that brain to work in the business world. Either way I wish her luck and would definitely consider investing in her intellect and business acumen.

– Chris

“One thing I always say is being a great chef today is not enough – you have to be a great businessman.” – Wolfgang Puck

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Corporate Debt to GDP

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