Do you back the jockey or the horse?

This question arises often when investors are learning the ropes, cutting their teeth and choosing their own style of investing.

When we talk about the jockey and the horse in the context of investing, we’re referring to the founder and C-Suite management team (the jockey) versus the Business Model (the horse)

In many ways of course, the answer to the question we’ve asked is – “both”, but in the early stages of the company we’re considering, the experienced investor would tend more to back the jockey.

Why the jockey ?

If a new venture has little track record but a team of experienced entrepreneurs and business builders around it, then for many investors the risk is lower than the alternative and the rewards is equal or better.

The alternative I’m talking about that we see a lot of, is where a good business is scuppered by poor execution, incompetent or inexperienced management. This often comes about by a founder seeing a good business and attempting of copy it, but without the wisdom and knowledge of the team behind the original business. That way lies all sorts of bumps and crevaces inthe road ahead!

In the worst cases we see unethical or illegal conduct amongst management teams. No promise of riches or future glory can rescue a business from that tragedy.

Only as good as the team …

When we’re sizing up an investment opportunity, it’s really about the jockey, the horse – and the teams around both. Those behind the scenes supporting the company operations and their strategic direction.

This is why real Due Diligence and Investment Research should always take great care to investigate the backgrounds of all the key individuals within a growing and ambitious business seeking your investment.

An that is why over one-third of our company research resources at Diligent Eye are focussed on those individuals. We can promise you that this is time and money well spent, since it has proven to be one of the most accurate indicators there are of failure or success of Alternative Investments in unlisted companies.

Finally here’s some further reading – whether you’re considering a significant investment in a new company or just looking to build your own investment research toolkit (we can help you with that too)…

Leave a Reply

Your email address will not be published. Required fields are marked *