Becoming an investor sounds like a dream job, doesn’t it? Picking and choosing which businesses to invest in, which sector to plough money into and then if all goes well reaping the financial rewards and accolades which go along with successfully aiding a company’s growth.
But what do investors actually do week in week out? Business Leader Magazine takes an in-depth look into the day in the life of an investor.
Ask any investor and there will be many contributing factors as to why they want to invest in businesses in the first place.
For Reece Chowdry, founder of award-winning venture capital firm RLC Ventures, his attraction to investing started because of his love for a certain piece of technology.
“After purchasing an Apple iPod in 2002 and believing in the product, I became interested in investing in technology,” Reece explains.
“Despite my classmates and family thinking I was a bit unorthodox, I was blown away by the product’s design and software, and that sparked my interest in technology.
“At the age of 13, I started my technology investment career by asking my dad to put all my birthday and pocket money into buying Apple stock.
“It was the sale of that same stock 12 years later that started RLC Ventures.”
For ex-Dragons’ Den star Sarah Willingham, a successful career in the hospitality sector was outweighed by a desire to become a mother. No longer wanting to run businesses, Willingham saw an opportunity to become a shareholder, with influence, while also conducting the balancing act of raising a young family.
She said: “My decision to become an investor was driven by the fact that I needed time to start a family. I had a successful career in my twenties but having four children in four and a half years, it became apparent to me that my life running businesses was not going to work with a young family.
“I knew I had to change and that’s when I became an investor. I knew I could take a significant enough stake in a business to be influential but not run it solely.
“I was able to back really good people, who were quite frankly better than me at running their business but needed help at the growth phase. Which is where I excel.”
Not the usual 9-5
But what does the day to day life of an investor contain? And how are new investment opportunities scouted?
Jamie Waller is a successful angel investor who was the CEO and founder of Jamie Waller Limited, which he founded in 2004.
It was in 2017 that Waller left the business having sold his holdings for more than £33m. He also started the London-based software company Hito, selling it in 2017 for £9m.
Jamie now invests in businesses that have been ‘overlooked by others’ with his new firm Firestarters, a £13m investment fund for early stage businesses. With a focus on businesses with a turnover of £2 to £20m that require both cash and expertise to scale.
He said: “I’d say my day to day life as an investor is extremely segmented.
“Around 25% of it is looking at new opportunities, a quarter of it is just general admin of the various businesses that we work with and then the last 50% of my day is helping existing investments which we work with.”
Ned Dorbin, leader of the investment team in the South West and Wales at Business Growth Fund PLC (BGF), adds that the day to day schedule of an investor can vary, but one thing is constant, investors are always on the hunt for more investment opportunities.
He said: “My day to day schedule is full and busy. It’s always very varied, a few days a month we have board meetings with companies, conference calls and we spend time meeting and networking with people who might be able to work with us.
“At BGF, we spend a lot of time going out and introducing ourselves to companies and what we do. The BGF brand is well known now and we get companies approaching us direct, but we also gain investment opportunities through word of mouth.”
Reece added: “Each day is different. As we receive around 1,400 investment applications a year, meeting new founders to learn about and evaluate their tech businesses forms the main part of my day.
“As board advisors, we also spend time supporting our existing portfolio companies by offering strategic advice. I frequently meet our fund investors to ensure they are updated with the latest investment activity and developments in portfolio companies.”
Time and patience
Investment opportunities can take time and require a lot of patience. The typical investment opportunity can sometimes take a while to come to fruition, with many falling through due to business disagreements or other logistical elements.
“The process between our first meeting with founders to investing in their business typically takes around four to six weeks,” explains Reece.
“During this period, our team performs deeper analysis and due diligence to investigate the viability and scalability of the company.
“Finally, other investors from our network of angels and VCs may be brought in to the funding round, from which the final investment is made. Even post-investment, the work continues as we offer different types of support structures and advice to our portfolio companies to help them along their growth journey.”
Jamie added: “I think a typical investment can take from start to finish around seven months. The process starts off straightforward at first with a few meetings and exchanges of information.
“This can take a few hours a week, but once you commit to take it further then its full time for two or three people for four to eight weeks.”
Perseverance is needed
Any investor will tell you that some investments don’t reap the rewards for many years after the initial placement. It’s a game of perseverance in most cases.
“It’s all a long game,” Emma-Jane Packe, managing director of The Supper Club, explains. “It can often take about seven to 10 years for the investment to mature and larger returns tend to be gained in the later stages, so it’s worth holding onto the investments for the long run.
“Remember, if you don’t follow on in further investment rounds, you may lose your pre-emptive rights further down the line.
“Be prepared to take a portfolio approach with businesses you’re going to invest in as most are likely to fail. From an odds perspective, members recommend making about ten different investments.
“For balance, equity investments should be about 10-15% of your total portfolio.”
As mentioned by Packe, the difference between a good investment and bad can be minimal, even if full due diligence has taken place, markets can change, consumer habits can shift, and investing can at times be a risky proposition.
However, Jamie doesn’t see angel investing as a gamble, instead he aims to find businesses which have already shown scalability.
He added: “A lot of angel investors take the approach of putting down £50,000 on 20 businesses and thinking some of them will come good. I prefer a business already turning over, say, half a million, making a small profit and ready to move to the next level.”
Adding to this, Reece said: “Investing in start-ups at an early stage is fundamentally different to all other types of investment. Needless to say, start-ups are riskier as 70% of all businesses fail within 10 years. If you’re expecting stable and steady moderate returns, stick to bonds.
“On the plus side, returns can be significantly higher in the long run for early stage investing. To reduce the risk substantially, ensure portfolio diversity by including companies from different verticals.
“Also, when they are at their early-stage, it is better to invest in the founder, as they are the ultimate drivers of their business’s long-term performance.
“Finally, when starting out, start small. Begin by investing through crowdfunding platforms and angel networks in businesses that you can understand and are personally interested in.
“Ultimately, start-up investing is exciting but to be successful it requires more than pure luck.”
When asked what makes a good investment, Sarah believes it’s all about a need or want for a service.
However, she is quick to stress that the management of those running the business can be a key aspect on whether to invest or not.
“I don’t like re-educating a market,” Sarah explains. “I personally like to invest in businesses where there’s already a lot of demand. I like to make sure a business I invest in turns out to be better than everyone else.
“Secondly, I always research if there is a market for the business and also how they can reach their potential customer base.
“Finally, it’s all about the people. Are those who are running the company better placed to do this business than anybody I’ve met. If you can mix all of those you’ve got a really good chance of succeeding.”
Ned concurs with Sarah, stating that he is a big believer in the management of the business being a crucial part in a good or bad investment.
He said: “It’s a management relationship that works well. When you have people who are driven, want to push on with the business and we work well together, with openness to influence.
“The measure of a good investment is the return you get at the end of it but the lead indicator is the management relationship.”
Reece added: “When investing in seed-stage start-ups, there are several ways to judge whether the investment will be successful. For RLC Ventures, we focus on three key aspects: team, market and product.
“A strong team is central to the success of any business, but none more so than early-stage companies. And the founder’s experience, commitment and entrepreneurial drive allows them to have a clear vision and strategy to achieve their ambitions.
“We have found that companies disrupting large and out-dated markets are more likely to be successful e.g. financial services. And finally, the product must be scalable, have barriers to entry and address a real-world problem to achieve the growth objective we seek.”
Technology comes to the fore
As the ever-changing world of technology comes to the fore within business there will undoubtedly be more investment opportunities on the horizon.
But what are the latest trends and the state of the investment scene currently? Dorbin sees technology will still be the focus for future investment opportunities.
Technology investments always get a lot of attention, manufacturing continues to be a strong sector.
Reece believes the next few years could provide an exciting time moving forward.
He said: “Investors are much younger than before. Fuelled by the generational wealth transfer and increased awareness of the importance of early-stage tech companies, young people are becoming more active investors in start-ups.
“Although there is a long way to go, there is also increased diversity within the industry. With a more diverse mix of venture capitalists, a wider range of insights and perspectives are achieved which ensure the best start-ups are identified and backed.
“Finally, there seems to be a paradigm shift of successful tech companies emerging in Europe who have enjoyed recent successes such as Monzo, Farfetch, Revolut and Funding Circle.”