Kevin O'Leary brought forth an example of a company by the name of Wicked Good Cupcakes to help the audience understand investment in the new era and the secret sauce entrepreneurs must concoct to be successful.
He spoke of 3 attributes in every pitch to ensure 100% financing, speaking to his role as a Shark in the wildly popular show, Shark Tank.
- The entrepreneur was able to express the opportunity in 90 seconds or less. "If you can't articulate, you're screwed".
- The entrepreneur emphasizes why they are unique to execute the strategy. If it's a cupcake business, did your family own bakery, a chain of bakeries? This allows for investors to de-risk their investment.
- The entrepreneur is able to articulate how much capital is required to break-even.
At this point, I paused for a moment and reflected. This really wasn't rocket science - it was simple and helpful for any startup (Fintech or not) to use and execute as they start to raise seed funding. As someone who has worn multiple hats, from investor to startup, this actually made sense. On the investor side, if a company has developed an average Fintech that seems to address part of the problems I've noticed in industry - great, but if they don't have skin in the game, no idea on how they will earn revenue, and no story of why this venture is different (even though there are multiple Fintechs in market that are addressing the same problem), why would I waste time and money? I will caveat that with, if I'm an entrepreneur, I'd want an investor that got me, my business model, and had a vision for success (based on their career accomplishments) that I could get on board with. Too often, deals are made by entrepreneurs for supposed financial stability. But this is really a two-way, give-and-take relationship.
O'Leary also brought forth an interesting perspective on the dynamics of entrepreneurs and their goals, based on the gender they identify with. He spoke of an assessment PwC conducted to understand trends in investment . He expressed that through the data analyzed from this study, women were more likely to set achievable goals and meet them 95% of the time whereas men were setting high goals and not meeting them. And, as a consequence, some of this data would then unconsciously influence investors opinions of entrepreneurs walking through their doors. Key lesson: everyone should set achievable goals to effectively manage their business and their stakeholders.
So, is there a secret sauce to investing? Yes, there are 6 golden rules!
- Diversification is the only free lunch in investing, never have more than 5% in any one position.
- There are 11 sectors in the S&P. Never own more than a 20% position in any one sector.
- Never own a position that does not return capital.
- Own at least 35% fixed income at any time, including real estate investments.
- Position preservation above performance.
- Keep 10% in cash at all times because inevitable crashes happen all the time!
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