Does Fortune favour the Brave?
New years can mark new beginnings, new attitudes and new opportunities. Let us imagine, for just a second, that you have both won some money ($100k) and that you are sick of investing in banks, treasury bonds or property. Whilst these are three of the safest, they are also three of the least interesting and least rewarding asset classes at the current time. You have recognised that even high returns like 15% per annum make your life easier but are a long way away from life-changing. You want 2022 to be different. And so, without telling your “significant other” (!) you invest $10k into ten early-stage businesses that pass a few simple tests. The results over the next five years are mixed:
Ø 2 failed completely
Ø 2 gave you only your original investment back
Ø 2 doubled in value
Ø 2 trebled in value
Ø 2 gained 500% (the average gain in good tech businesses in around 8x over five years)
I would be ashamed of this as a bag of results (!) but even with these mixed outcomes the $100k you invested is now worth $220k. If you had put it with a bank in a fixed deposit account it would be worth less than $124k. If you had invested it in a high yield bond with us it would have been worth around $200k assuming that returns stay where they are at the moment. Every one of the ten businesses that you backed would provide bi-annual updates and news flashes when something amazing happens. You would have the highs and the lows of being part of something new and exciting, you would be a job and wealth creator, and you would have the unmistakeable rush of seeing an educated bet pay off. Or you could have a new 2022 diary from your bank and the joy of knowing that you contributed to the directors humongous bonus package. Take your pick!!
Over the last five years I have personally exited businesses with returns of between 4.5x and 9x original investment. This year I am expecting one exit at 53x and one at 18x. My best investment is currently forecast to materialise at 78x although not till 2025/6. I can wait! I have only had one speculative investment fail completely in the last five years and that was into a medical development company. I learned my lesson and would not invest in this area again because it is very complicated and I am not a scientist.
The investments that we recommend pass the following tests:
Reputation – are the people behind the business reputable, knowledgeable and proven: have they exited a new business successfully before?
Ability – is the management team fantastic operationally, financially and in terms of developing their market? If the management team isn´t great then we don’t back it because it won´t succeed
Expertise – do the people involved at every level have experience in this or a very similar field?
Skin in the game – are the owners invested with time, soul AND their own money?
Sector – is this a sector where we can achieve high multiples of valuation? (Think AgriTech, medical marijuana, Artificial Intelligence, innovation, online delivery etc)
Exit – how are we getting out, when are we getting out, what are the threats to an exit within a maximum of seven years?
I like getting our clients a good regular return on their money. It´s satisfying in the way that putting on an old but comfortable jacket is. But it doesn´t thrill the soul. Finding investments that generate a life-changing return and seeing them fulfil their potential is akin to scoring the winning goal in the last minutes of a Champions League Final.
I came across such an investment about three weeks ago. It is the usual story: right place, right time, right people. Our access to it has been made possible only because of a delay occasioned by Covid and the subsequent need to generate a small amount of additional funding quickly. The unusual thing about this investment is that it will very quickly return nearly all the initial capital (within 6 months) and thereafter generate significant income before an exit at up to 18x the original level. I like it so much that I am going to syndicate it to allow others to benefit from it.
Deals such as this, and another exciting AgriTech opportunity, are rare and we are always under strict non-disclosure agreements but I am more than happy to share information on a 1-2-1 basis. If you can afford to take a qualified risk with some of your wealth then get in touch. And remember: fortune favours the brave! Particularly at the current time when because of Covid, macro-economic concerns and a malevolent Russian dwarf it seems to me that a package of well-researched speculative investments delivers more certainty than the traditional safe havens.
Do get in touch if you want to know more. 2022 could be the best year yet.