By Paul Ferguson
“It was the best of times. It was the worst of times.” I just had one of the best weeks ever! And also, one of the worst. As an investor in the precious metals and junior mining stocks, it was one of those weeks that brought an unsolicited opportunity to find out what it is that you are made of, where the metals test your mettle, as it were.
By now – after so many of them – one would think that hair-raising corrections in the metals and related stocks would be handled as a matter of due course. Like half-time at a football game. A break in the action, an anticipated pause allowing those present to attend hit the hot dog stand or stretch their legs.
Instead, each of these episodes brings renewed feelings of horror, dread and the feeling that a) the correction will go on forever and b) your stocks will go to zero. Even though you know that it never does and they never do.
As an investor in start-up companies it was one of those weeks that brought the pure joy and visceral excitement that flow from a situation where a group of smart, capable and wonderful people, intersect with a tremendous business opportunity. And it’s no accident, either. I think it’s one of those “Law of Attraction” things.
Successful people are drawn to situations where they have an opportunity to do what they love to do, working with the sort of people they want in their world. One of the key rewards of success is the ability to pick and choose the right situation, to wait for the right opportunity, to work with the people that “float your boat”.
Unfortunately the situation I have described is more the exception than the rule as any angel investor or venture capitalist will tell you, if they are being honest. Most start-up companies have some but not all of the right elements and the odds are that the majority of them will end up as unintended offsets to capital gains and not as vehicles that transport you to the land of financial security.
But when all of the right elements are present, when the right people are involved and they are focused, determined and rowing in the same direction, well, there are few things I know of that can deliver such deep satisfaction. It’s so compelling and profound that many investors will use the language of religion or addiction to describe the experience. There are other factors in play that have made this area increasingly attractive to me. The lack of transparency in the public equity markets (for example, the refusal of those who know to answer the question of who got what from the bailouts), the prospect of capital controls, the predominance of program trading and the power and inclination of big Wall Street players to use advantages like visibility into order flow to the detriment of small investors – all of these factors have made investing in small but growing local businesses increasingly attractive.
Investing money in companies I understand, run by people I trust and where I have a chance to have a direct impact on building something real and sustainable has become more attractive as the public equity markets have become less so.
Despite the relative merits of investing in start-up companies though, it is not for everyone. Most companies are able to accept investments only from “qualified investors”, or those deemed to have sufficient assets to take on the risks associated with an emerging business.
Beyond having the financial qualifications though, I suggest that investors need to have patience and appetite for risk in quantities sufficient to carry them down what can be a very long road. And a willingness to accept that the odds are that the road will turn into a trail of tears and not the stairway to financial heaven.
Finally, investors that can check all the above boxes should seek to pair with companies where they can add value. Where prior experience or your Rolodex can be brought to bear and make a substantial impact. Where your wisdom and guidance is not only relevant, but will be welcomed and utilized by the company in question.
Even if you do all of the above, there are no guarantees. I feel that I am now well-equipped to make investments that have a better probability of success because of the ones I have made that did not work out. There is no substitute for experience. But if this sort of thing still appeals to you, then the next best thing is to seek out angel investors that have had failures and successes and to learn as much from them as possible.
Entrepreneurs tend to be optimistic. They have to be able to suspend disbelief in order to undertake the daunting task of building a business. They have to have the strength of vision and character that will be required at many points along the way. Recognizing this though, means that an investor needs a healthy dose of skepticism to inoculate them from infectious but blinding enthusiasm. It’s part of the entrepreneur’s job to gaze at the stars and dream of what can be incumbent upon the investors to insure that at least one foot remains firmly planted on the ground at all times.
One of the companies I spent time with this week has been soldiering on for over six years now and has been through a lot of tough times along the way. But things are all coming together now and the momentum and excitement are tangible. The gyrations in, and increasingly opaque nature of what are supposed to be transparent markets have served as a reminder to me of why it is that I have taken the leap of faith required for these situations…over and over again. It’s required ingesting countless bitter pills, but the sweetness of one that has all the right stuff more than compensates for all the rest.
Paul Ferguson is a private investor. He serves as the Treasurer of the First Ever Solari Circle. He also serves on the Board of Directors for Shield Gold, Inc. and ProcessUnity. You can follow him at twitter, his i.d. is: PaulFerguson