Round Table
“SUCCESS IS NOT FINAL; FAILURE IS NOT FATAL: IT IS THE COURAGE TO CONTINUE THAT COUNTS.” WINSTON CHURCHILL
At a recent GBI Magazine EIS Round Table, kindly hosted by Calculus Capital, the spotlight fell on the success/failure rate among early stage companies and how it is perceived by fund managers and investors alike.
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hairman for the day Richard Angus of Hardman & Co reported a recent conversation with an investor who said that of “...the next 10 investments he would make, 3 would survive (with 1-2 being successful) and 7 would fail. “And that’s a good risk reward profile. But do you as advisers think you can take the investment proposition to the next stage with your client with that information? John Glencross of Calculus agreed: “Anyone who says they’ve never had a failure in business is not being totally straightforward as this is about growth investment. As growth investors, we know it works, we know there’s plenty of intellectual capital in this country, and the communication of that risk and reward to the outside world can be tricky. I went last night to my old university where they brought together people from the fund management industry and students, and someone said if they get it right 60% of the time, they’re ahead of the market, which is true. “The important thing is the investor. If you were as rich as Steve Jobs, I’d say if you like that company, invest in it, but for people for whom this isn’t their day job, you have to have a portfolio to spread the risk.
After Andy Davidson of We Are Nova reminded the participants that 90% of early stage companies fail to make it past year 3, John emphasised “I think you have to tell clients there will be failures and say that’s okay because that’s part of growth investing, but the loss relief on failures is very attractive. “The bottom line is if you want a big income fund, fine, you don’t expect companies to fail, but they seem to quite regularly. In growth investing, though, you will get failures. You have to tell the client it’s okay, the important thing is to have a portfolio and have a growth manager with a track record. Andy Davidson suggested it all comes back to the data: “You need to go back to your client and say what the market has done. What appears to be happening is that all this growth in the market is coming from a small number of companies so you need a really big portfolio. Fund managers have different specialities, but I’d say if you’re going to invest £100,000, I’d put £10,000 with 10 different managers. Different managers have different specialities. It is important to talk about failure in the context of the wider market growth, and the way to mitigate risk is to put your money with as many as possible.”
GB Investment Magazine · February 2020
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