Are you a capital allocator who understands the true power of saying “no” in the investment world? Discover the art of declining investment opportunities and the profound impact it can have on your lo
As a capital allocator, we place more emphasis on saying “no” than “yes”. Sometimes, declining an investment opportunity can be challenging. There are countless reasons why an investor may choose to pass on a deal. Ultimately, it often boils down to some inherent bias they possess. I previously wrote a piece on the three ways VCs typically make investment decisions; one of the keys is having solid traction.
I recently listened to a fascinating podcast featuring a credit fund manager, who made an intriguing analogy to surfing. While being a skilled surfer is certainly admirable, what matters most is the size of the wave you’re riding. When it comes to market growth, it’s easy to overlook operational weaknesses that can hold you back.
Discovering a company that checks all my boxes, only to find it operating in a less than desirable industry, is quite disheartening. For instance, investing in software companies catering to independent pharmacies; the market niche and fragmented, small enough to escape big venture attention, yet with evident potential to become a big enterprise with the right capital.
The independent pharmacy business is rife with challenges. Drug manufacturers, distributors, and PBMs are relentlessly cutting into independent pharmacy margins. The market is contracting, making it arduous to sell software in this sector. While some might argue that’s precisely why pharmacies need our software, I find that reasoning questionable. Another challenging market is commercial real-estate software. With the rise of remote work and impending defaults, selling into this market is equally difficult.
Investing with a purpose is essential for both the investor and the companies being backed. No matter how attractive on the outside, if an investment doesn’t fit within a portfolio’s unique set of criteria, it might be better to leave it behind in the search of one that can help generate positive long-term growth and value. It’s important to focus on the waves we want to ride, as well as any opportunities such a wave may offer in terms of industry trends or economic conditions. Investors need to remain vigilant so that they don’t missout on hidden gems in overlooked markets and sectors. Through proper diligence, we can make informed decisions that will help create positive returns for our clients and, ultimately, ourselves. Be sure to subscribe to my blog for weekly insights on investing strategies and portfolio management techniques used by successful investors!
