By Andrew Aldridge, Partner at Deepbridge Capital
Technological advances and the fintech revolution are advancing the world of financial services and opening opportunities to investors like never before. However, investing at any level still requires a human judgement and is reliant on human behaviour. Large corporations being traded on the world’s stock markets are still run by human beings and their actions and experience can directly influence the Company’s performance and thereby investment portfolios internationally. At a very direct level, we should all remember the ‘human behaviour’ of Gerald Ratner and the effect that had on his company. More recently we have all witnessed Elon Musk’s social media chatter influence investor behaviour.
On a more local and lower level, this importance of human behaviour is critically important for early-stage companies. The personality, experience and endeavour of entrepreneurs is one of the key attributes that venture capital investment managers look at when considering which of the highly innovative companies they see should be fortunate to receive their capital.
At Deepbridge, we see thousands of Enterprise Investment Scheme qualifying investment opportunities each year. We screen companies based on stringent criteria, including the protectability of the Company’s intellectual property, the global market they are targeting, their revenues to date, and much more. However, it is the people behind the product or service which are ultimately the reason behind why we invest and for this there is no one-size-fits-all. In some instances, it may be the founders’ experience and track record of starting and exiting companies which is the ‘X factor,’ whereas in other scenarios, it may be the academic and sector knowledge the founders bring.
However, the key attributes that commonly set great entrepreneurs apart include resilience, drive, teamwork and an understanding of their own limitations.
Resilience is key
Anybody who has ever run their own business will understand that things never go as planned. An entrepreneur may have the most articulate business plan, but there will be crosswinds and headwinds which delay and distract the business from this perceived trajectory. Having the resilience to continue to steer the business through these challenges and ensuring that the core objectives are met is how successful business leaders earn their stripes.
It is also important that founders have the drive to grow a business and aim for an exit opportunity in line with investors’ goals. When raising venture capital, it is important the entrepreneurs realise that their goals need to be aligned and the business cannot drift.
Your team is everything
A key challenge for any Company that is seeking to grow is finding the right hires. A founder who shows the ability to work in and lead a team, is therefore critically important or you’ll find your capital being used up on hiring and firing and not progressing with long-term committed professionals.
Know your strengths and weaknesses
The final key point is that founders need to have the humility and self-awareness to understand their own weaknesses and where help is required. For example, academics may know the science and purpose of their life-changing discovery, but they may not have the commercial experience to build a business or the sales aptitude to take the product to market. Only by understanding their gaps can the founders then bring in the required team-members to expedite the growth of the Company. Understanding one’s own weaknesses is very much a strength.
Conclusion
At Deepbridge, we are extremely fortunate to work with great investee companies, with great management teams but it is far from luck. A fundamental part of what we do is identifying the right companies in which to invest and working with the great founders to ensure their Company has the right skills and structure to drive the business forward.
So, whilst the world we live in is becoming increasingly tech focused, which is of course of particular importance to us as an EIS investor in tech innovations, there remains a need for empathy and the understanding of human behaviour and skills. You might be investing in a Technology Growth EIS or a Life Sciences EIS, but part of what you are investing in is human capital.
