Every investor knows the best portfolios are built on solid, rational business choices, an in-depth understanding of the market, and more than a little bit of luck.
But, for those of us who have got the start-up bug, we often need to look beyond traditional methods. For early stage businesses, especially tech start-ups – you look at the founders, their skill and drive, the potential of the company, the problem they are solving, the market potential and the quality of the product and the intellectual property.
Many of the most successful start-up investors started their journey as entrepreneurs. Because we know what’s it’s like to risk everything to launch a company, and put in the hard yards to make it work, we understand where the people we are investing in are coming from. It also helps that we know the market, and the steps it takes for an entrepreneur to go from first hire to initial public offering. I’m a predominantly tech investor, I like big scalable businesses run by tech-savvy founders who want to take on the world.
Perhaps that’s why many people were surprised by the latest episode of TEN’s Shark Tank, which saw me and my fellow shark John McGrath invest in Hummingbirds, a childcare business for children with special needs.
I can understand this. If you told me a year ago that I would be investing in the childcare industry, I’d have laughed you out the door. However, when Leah James and Rebecca Glover entered the Shark Tank, they came not just with a moving personal story about what they’ve done to ensure a better future for their children, and other children effected by disabilities. They came with a sharp, well-thought and viable business proposition.
Hummingbirds are operating in a hugely under-serviced niche in their sector. They have a massive waiting list in their Queensland home area. The company founders are smart, articulate businesspeople who have in-depth expertise of what their customers are experiencing. And they have a fire and passion to succeed which reminds me of myself when I started SE Net and then PIPE Networks.
As a former entrepreneur myself, I let myself be swayed by the commitment, skill and passion of the founders I invest in. Then I look at the numbers behind the business, the quality of the product compared, and the size of the addressable market. But above and beyond that, it’s true to say that an entrepreneur’s authenticity and capability are the not-so-secret sauce of early stage investment.
This holds true for any sector, not just tech start-ups. In fact, Leah and Rebecca remind me of two other entrepreneurs who came to me with a big idea. They were ex-army personal and highly experienced skydivers. They had a passion to create a wholly new experience – and could show that people would pay for it. Four years later Indoor Skydive Australia (ASX:IDZ) is a reality with multi-million dollar facilities in operation in Penrith, and soon to open in Gold Coast, Adelaide and Perth.
As I said in Shark Tank, Hummingbirds was a deal too important not to be done. Leah and Rebecca’s vision is truly inspiring and as a father to a young daughter myself I could not help but be moved by the their personal stories. But as investors we are not here to give people money so that they can feel fulfilled. We’re here to help accelerate fast-growing companies, and create wealth and jobs for Australia. I’m not in the business of making charitable start-up investments.
But, with a little money and a lot of mentoring and guidance, I believe myself and John can help Hummingbirds transform the face of childcare in Australia for children with disabilities. I believe the business can become a viable and profitable enterprise, one that creates social good and decent profits. After all, why can’t a business be a good investment and help people at the same time? I may have moved out of my comfort zone and into the childcare industry, but I haven’t given up my investment principles.
This article first appeared on Business Review Weekly. View the original here.