“Ideas are stronger in ink.”
A couple of weeks ago, I was invited by my friend Mentor Myron Sta. Ana to be interviewed in his weekly talk show, “Myron Kaming Advice.”
The CEO of MSS Business Solution, Myron is our country’s very own Corporate EnterTrainer and Soft-skills Guru, it was such an honor to be invited and talk about scaling startups.
During the show, Mentor Myron inquired of me a very particular question, one that I often get asked:
What qualifications do I use when investing in a business?
As an investor together with my Partners at BTL Venture Capital, as well as doing my own Angel Investment on the side, I gave the usual response.
“First, like in F1 formula racing where it’s really the driver, not just the car, we invest in the team, not just the business,” I said.
“Second, we look for entrepreneurs who are doing something already rather than someone who plans to start something. The former shows initiative, drive and proactivity, that the entrepreneur will build something with or without us. That’s the kind of people we would love to invest with,” I added as we moved on to the next question.
For a bit of background, I have spoken to hundreds of entrepreneurs of every kind in the course of my career.
From aspiring and first-time, to those who are bouncing back and serial entrepreneurs, I have learned that almost all of them ask less for financial capital and more for advice in getting traction and scaling their startup into solid ground operations.
As a rule of thumb, I invest in both capacity: intellectual and financial capital. By that I mean, the most common practice is that I get invited to sit on the board or work with the founding team as the Executive Advisor to start and scale their enterprise for equity. But in many instances as well, I invest financial capital from my own personal account only after I helped the company operate efficiently.
I wish I could tell you that all the investments I did turned to gold, but that would make me a demi-god in comparison to every Silicon Valley VCs.
Where investing in businesses and partnerships are the norm in other countries especially in the west, the truth of the matter is, very few businesses in the Philippines are aware of how venture capital and angel investing works. And I’m talking about already established, multi-decade small-medium enterprises here.
Our legal system also reflects that since most Memorandum of Agreements (MOA) signed by both parties, at times, mean little when the business grows or goes bankrupt, depending on which side of the agreement you fall under.
Brain Rape.
In fact, I’ve had my fair share of ‘brain rape’, where I, in good faith, provided my expertise for a certain share of equity, only to have our agreement rendered null and revoked once the results (and along with it, the cash) comes in.
To protect the innocent and the guilty, I don’t mention the specifics and am only sharing my story for the educational purpose of you, my dear reader.
In one instance, after I had provided Php 500, 000 (at the least) worth of Executive Advisory and other services as partner, a CEO sadly claims she did not fully understand the terms of the engagement and expected me to funnel capital to her business after we signed the dotted line and since it didn’t happen, revoked our agreement.
I spoke to our legal counsel for insights but I was clear that I am not pursuing any lawsuit since she is a colleague. Our lawyer advised us that if that is my decision, we’ll simply file it under “negotiating in bad faith” and recommended never transacting with her in the future.
The Secret to Scaling.
So learning my lesson, I reflected and asked myself to come up with clear, specific and unmistakable markers that would compel me to invest both my time and money and then – here’s the most important part – put it in ink.
You see, I already know what I need to know from a business to become an investor. And that is the problem: only I know what I need to know.
Drafting it on paper helped me to simplify what I want and the exercise breeds residual dividends.
Here are two markers: Tenacity and Track Record.
By Tenacity, I mean I invest in people who will build their startup dream into reality come hell or high-water, with or without me.
By Track Record, I mean the entrepreneur already has the ability to hit the company’s targets evidenced in its past performance preferrably six (6) months or in some cases, three (3) months at the very least.
With Tenacity, you have my Executive Advisory. With Track Record, you get my (and my network’s) money.
It took me a good, mind-melting 15 minutes to simplify the guideline that would forever dictate how I would operate when it comes to investing in businesses.
So in closing, let me shift gears to emphasize the principle “write every time” as a final concept.
This philosophy of putting my ideas in ink enabled me to step back and forced me to be in blinding clarity of what I believe is my guideline when it comes to investing in businesses.
This one time act of putting my ideas in paper is like the paradox of lifting weights: exhausting my muscles actually made them stronger.
If you haven’t realized it yet, making decisions is mentally draining. Hence, with my principle in ink, I made a one-time decision that would render hundreds of mini-decisions that come after either easier to make or completely irrelevant.
What is exhausting for five minutes will not only ensure I make the right moves now and in the future, but scales my impact by giving me more time since I can now let others do the work on my behalf: they just follow the written principle.
And that is a fundamental building block of scaling: write down your ideas.
Final thoughts
We’ve covered a lot in this write up so as we come into its conclusion, let me summarize the key points.
First, when investing, focus mainly on the people and secondarily on the business. Look for people who will make their dream a reality with or without your help, whatever it takes. Also, a good track record of past performance is a leading indicator to invest financial capital.
Second, making decisions is mentally exhausting, hence designing a guideline that would serve as the basis of what you consider as a good decision.
Finally, put that guideline on paper – read: write it down – to enable other people to make the right call even in your absence. This practice frees you to have more time to pursue other productive things.
From that late-night interview to understanding the building blocks of scaling enterprises, let me challenge you to put these ideas in action right now.
Let’s get to work.
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Florentino Hernando is the Managing Director of FAHernando Consulting, an Executive Advisory firm with the mission to accelerate performance by 100x.
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