What do you look for in a business that approaches you for investment?
Oliver Rothschild (OR): “To me it’s the people in the business – the way they present it. You’re looking for enthusiasm and the fact that they are convinced they have the best thing since sliced bread. They’ve got to be convincing and they’ve got to have a marketable proposition – though they don’t necessarily have to be first to market. I always use the example of MySpace and Facebook. I doubt I would have invested in Facebook at an early stage. I would have asked: ‘Is there room for another social media group?’.
“You’ve also got to be sure the business is investment-ready. Early-stage start-ups are not necessarily investment-ready. They may think they are but they’re not.”
You mention the way a business presents itself. What’s the key to a good pitch?
OR: “It’s very simple – the proposition needs to be understood within 60-90 seconds. And it has to be presented simply. I need to know: what have you achieved to fulfil your proposition initially? What have you completed to do so and where is it going? What’s the benefit? How is what you’re doing going to make a difference?”
Have shows like Dragons’ Den helped our understanding of pitching and the process of seeking investment?
OR: “Dragons’ Den in its initial stages was good. During the start-up phenomena it was instrumental in increasing public interest; when it first hit the screens there were more benefits than disadvantages in what it was doing to help people understand the early-stage business scene, as well as how to present well vs. disastrously. However, one must remember that it was and still is a TV show for entertainment. When all’s said and done, it’s surprising how many ‘Dragons’ Den’ type pitching initiatives I have become involved with. There are a lot of Dragons’ Den-esque pitching events about.”
You’ve been investing in businesses for a long time now. How have you seen businesses and the investment change?
OR: “I used to be the Chairman of an international travel agency. If I was to have told you that most travel agent shops would no longer exist in a few years’ time from that date, we would have looked at each other and thought ‘Are you mad?’. But now 90 per cent of travel booking is done online.
“This has created a very fluid scenario for businesses and investors. We’re all looking for non-conventional businesses now and we’ve got to look at investment in a non-conventional way. If you don’t, you’ll miss out on the next Facebook.
“It’s a very unusual market and there’s no real benchmark any more. You can take two companies with virtually the same proposition and one finds the money and one doesn’t. There are all sorts of reasons for that, but I’m amazed at some of the companies that have got investment and some of the companies that haven’t. Are they going to the right funders? Are they seeing the right people?”
What’s your particular approach to investment?
OR: “Well I’m against conventional ways of doing it. My due diligence is sadly lacking, for example, but that’s because due diligence cannot be done in an early stage investment in the same way as we understand it.
“It’s your instinct. I am judging the company on how I see it and whether it has the feel of a good bet. I don’t get it right all the time. As an investor, you may well keep backing the wrong ones for the first hundred times and then you get the one that pays for all the rest.
“We had a company that we spawned in Innovation Warehouse, which they grew from nothing to 57 people. They managed to find funding with a valuation of £25 million and I didn’t ever quite get what they were doing. As I said, it’s an unusual market and there’s no set rule any more.”
The views and opinions expressed in this article do not necessarily reflect the views of the HSBC Group.