INVESTING IS LIKE GOING ON A DATE
Within the first five minutes of meeting someone you’ll normally know whether they’re the right person for you. It doesn’t matter if you’re talking about business or the weather — you can suss out how a savvy a person is within moments and get a feel for whether you’d work together.
PICK THE PERSON NOT THE PRODUCT
It’s not so much about the idea itself but the person behind it. A good person can often make an average idea work but an average person won’t be able to make a good idea work. There are plenty of examples where the product has been solid and workable but it’s been the people that have made all the difference. If you look at Google or Microsoft in their early days, for instance, you’ll find that the ideas weren’t that different to others that were also around, but the people who executed them helped to make them so successful. It’s the same with another of my investments, the online fashion site Net-A-Porter. Now you could argue that there was nothing particularly different or original about it, but it was the quality, ability and sheer drive of its CEO, Natalie Massenet, that was the key ingredient. Now it’s a hugely successful global company, while most rival sites fell by the wayside when the dotcom bubble burst. It is one of my best investments ever and I still have my stake.
BE NICE NOT NASTY
Being nasty to people when you’re in a powerful position is a sign of weakness. I think too many investors mistakenly think they’re Simon Cowell. I want to get the very best out of the people I back and I don’t think you achieve that by holding a blowtorch to their forehead all the time. On Dragons’ Den, I wasn't concerned with grilling someone over their third-year gross margin forecast, while secretly hoping they’ll make a mistake. For me, that’s a completely ineffective way to discover someone’s true business talent and potential. Yes, you may find out if they’re good under pressure but that’s not a normal working environment. I prefer my people to be relaxed, not sweating and shaking. In my view, there are ways and means of finding out how people think and how they perform and being confrontational isn’t one of them.
COMMON SENSE IS KEY
Be a ‘happy cynic’. You need to believe that the investment has a real chance of succeeding but you must also be aware of what can go wrong. Yes, it’s hard to predict difficulties with any great accuracy but, with the right person in charge, you stand a greater chance of navigating the company through tough times that do arise. That said, it never ceases to surprise me just how many illnesses businesses can catch. The list is endless.
TICK THE BOXES
If you’re thinking of investing in a new opportunity, ask yourself some crucial questions. Has the person involved ever done anything successful before? Have they shown drive and made sacrifices in order to achieve something, whether professionally or at a hobby (a good indicator of someone’s ability to tackle challenges)? Do they have good people skills? Also remember that those seeking investment will never be nicer to you than when asking for your money.
DEMAND REAL COMMITMENT
You have to get an idea of what the other person is bringing to the table. Are they putting their own money in? Have they still got another job? Are they fully committed? You want to see someone taking a risk alongside you, whether that be financially or professionally. I once invested in a business where the 20 or so employees all invested their salaries for six months into buying shares in their own company. Essentially, they were working for nothing for a while. That, to me, demonstrated real belief.
GET OUT OF YOUR COMFORT ZONE
You don’t have to be familiar with the industry you may be getting involved in. Look at some of my investments. I’ve had a diamond mine in Sierra Leone and restaurants in London. I’ve invested in cancer research and websites. And even Reggae Reggae Sauce. There’s no way I could be an expert in all of those things, even if I worked 24 hours a day. But there are a lot of similarities between businesses and it’s relatively easy to switch from one to another. All you need is a genuine interest and a capacity for learning.
BE REALISTIC
Investments are very illiquid. It’s not going to be easy to sell your shares, and almost impossible if the company is in its infancy and struggling. Obviously, when a business prospers it’s easier to exit but if it isn’t you may be looking at seven, eight, maybe even ten years or more. That’s when it’s tough. It’s my experience that these things invariably take twice as long as you expect so you have to assume that your money is going to be locked up for a long time. Now, you don’t mind investing for ten years if you’re going to get five times your money back but if you’re only going to double it then that’s not good enough.
I invested in a Scottish company called Wolfson that’s been very successful. It makes specialist chips that now go into iPods, and it floated on the stock market a while back. But that took seven or eight years and a lot of hand holding to happen. If you ask me what it does, all I can tell you is that it does DSP, which is something to do with switching between analogue and digital. That’s the limit of my knowledge. But the people there seemed very clever and they knew what they wanted and that’s what got my interest. I’d like to say it was some kind of foresight, but it wasn’t. There’s just an element of randomness and it’s finding a way through it.
DON’T BE AFRAID TO FAIL
Failures are inevitable when you’ve backed more than 60 companies. I used to have Scott’s, London’s third oldest restaurant. It’s an institution. It was mentioned in The Great Escape. The IRA bombed it. I had it for three or four years and just couldn’t make it work. As someone who eats out a lot, I thought that if we got the service, the ambience and the food right it would fly and I think we achieved that. But we just kept putting more and more money into it with no success at all so we sold it. Then, from the day it reopened, it’s been a raging success and now I can’t get a table!
IT’S MORE THAN MONEY
The most common mistake people make when they pitch to me is in underestimating the value of business skills. I’ve had maybe 5,000 emails from people looking for investment in the last couple of years and my usual model is that if I like the idea and the person I will back them with a comparatively small amount of money but stress that my business skills are worth just as much as their idea. What you are bringing to the table, not just money, is every bit as important as the idea itself. It’s a long, hard process getting a product to market. It’s not just my contacts book. I’ve been there and done it and I’ve messed up too, so I know what the pitfalls are.
You’ll see a lot of people who want to get into manufacturing and the first thing they do is rush to China to get their product made. But that could cost £30,000 for travel, machining and so on. Then, they may spend £10,000 on a trade fair stall and £5,000 on a website. Suddenly, you’ve done £70k without much to show for it. Maybe 90 per cent of the people that come to me think that that’s how you start a business. It isn’t. You want to work with someone who’s creative with costs. Maybe they’ve exchanged some small amount of equity with a website developer? You don’t want to be working with people who are more interested in getting a nice big office, a secretary and some executive toys.
KNOW YOUR PLACE
Each investor is different in terms of just how hands-on they are, but there’s a fine line between helping out and interfering. My favourite investment is something like Net-A-Porter, where I have very little involvement. I’m more of an Alex Ferguson than a David Beckham. If my players are doing all the right things I’ll just turn up at the training sessions, watch them score brilliant goals and let them get on with it. But if changes need to be made, I’ll help make them. As an investor you’ll find that when a company is doing well, the success is all down to them, but if it’s not, suddenly it becomes a joint problem.
GET A FANTASTIC IDEA AND THE RIGHT PARTNER
Look at Reggae Reggae Sauce. You had a great frontman in Levi Roots and a good, strong product. I sold my shares at ten times what I paid for them within a year. I think that’s probably the most successful exit ever on Dragons’ Den.
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