What Do You Value in a Company?
By Alan Olsen
Startup companies are a dime-a-dozen, and many of them are looking for investment help from larger companies or in most cases investment bankers, also known as venture capitalists. Venture capitalists have a lot of money at their disposal but they don’t become successful by simply tossing money at every company that comes seeking an investment. Successful venture capitalists achieve success by using sound practices and strategies to choose their investment options wisely. For example, I recently spoke with Golden State Warriors principle owner Joe Lacob about the process he uses to determine which companies have value and which of those factors are the most valuable to him.
You Will Have to Take Some Risks
Joe told me that selecting a company to invest in is both a science and an art. Joe said, obviously different people who invest successfully will give you different advice. He said some would say that management is the most important thing when it comes to investing in a company and that the idea can change. On the other hand, he said others would say that the market size is the most important thing. They would say the most important factor is to really identify emerging markets to be able to predict when a big market is going to be emerging.” In Joe’s case and in his firm’s case they have always been very much thought of as a startup venture firm as opposed to late-stage firm, so there’s not a lot of information always. So Joe said, “all those things matter, but in his case your always going to have things you don’t know. You’re never going to have perfect information, so you have to take some big risks.”
Get the Right CEO in Place
However, Joe also told me that: “Taking big risks though doesn’t mean necessarily to just wildly or randomly invest. We have to look at the people. Is there something special about the founder, or if it’s a little later something special about the management team.” Joe then shared what he feels is the most important factor in whether or not a company will be successful. He said: “in a company the most important thing you will ever do as an investor is to identify and put in place a great CEO. At the end of the day it’s the single most important thing. It tells you whether a company is going to be successful more than anything else.” Joe said the right CEO is more important than the business plan, the size of the market, or anything else.” But he did also concede that “identifying the size of market is very, very important” as well.
Look for Greater Opportunities
Joe compared investing to fishing in a big stream. “I like to say I would rather go for a big, big opportunity – fish in a big stream. If you’re fishing in a small stream, a niche opportunity, then if something doesn’t work at that one there’s not going to be lot of other opportunities either, whereas if you’re fishing in a big emerging stream where lots of fish are coming down you’re going to catch one here or there.” So for Joe it’s very important to identify areas of the economy or areas of certain industries that are ripe for very large change. He said if you can do that and put the right people in place, get the right business plan and have the right capital plan you can be successful.