Investing
Take a holistic view of your investment universe. Look at the investments as a whole, and under take a comprehensive strategic capital allocation exercise to make sure that returns, risk and reward are viewed in the round.
It’s vital you put the work in up front. Take the time to build strong investment governance including strategic asset allocation frameworks and investment policy statements. In simple terms: What are you investing in and why? What do you care about? Capital allocation is key across the founder’s universe – don’t underestimate the opportunity cost around illiquid investments and make sure capital allocation is kept under review.
In a Founder Office, investments can often be dispersed and unconsolidated. They can be held with multiple managers with relationships built up over time. The decision-making around how much of your Investment function is outsourced v brought in-house is critical in informing the approach.
Give some thought to:
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01
Asset classes
equities, fixed income, cash/cash equivalents, commodities, PE investments, venture, real estate, hedge funds, crypto, art and collectables, luxury, public markets, operating businesses
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02
Passive v active investments
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03
Sectors and thematics
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04
Banking and custody arrangements
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05
Stage of investing
VC, growth, PE, and beyond
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06
Reporting
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07
Manager selection
fees and benchmarking
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08
Audit and finance
including performance and valuation
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09
Tax and legal
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10
Jurisdictional issues
regulatory, tax, reporting
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11
Investment origination and management
Power-up
There are five common pitfalls when it comes to the investment function of a Founder Office. Be aware of them, and avoid falling into these traps as you build.
01 Lack of investment know-how
Signs of this include having return expectations that are entirely unrealistic, making direct investments with inadequate resources and skills, or a reliance on in-bound deal sourcing. It’s easy to underestimate how difficult it is to outperform the market.
02 Over-confidence
Don’t assume you can outsmart others and the market by investing in a sector without specialism, or by implementing an investment strategy without adequate resources.
The key question to ask here is: What is our right to play and what is our right to win?
03 Impatience
Taking shortcuts will almost always end in disappointment. Don’t underestimate how long it takes to build up a world class investment portfolio – particularly in private markets (for direct or fund investments).
04 Endowment effect
Looking at the business through the lens of a rational investor is vitally important. Holding onto a business for too long generates huge opportunity costs.
05 FOMO and passion fallacy
Be aware of the hype cycle and remember that people only talk about their successes. If you’re making passion-driven investments, keep a level head. Passion does not automatically lead to success.