What Do Conservative Value Investors Look For In Risk Seeking Entrepreneurs?

Posted on by fundooprofessor

Edited and slightly expanded transcript of talk @ Firebird, Coimbatore.

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Published by fundooprofessor

I am Distinguished Adjunct Professor at Flame University, Pune. Previosuly, I was Adjunct Professor at MDI, Gurgaon, where I taught MBA students two popular courses titled “Behavioral Finance & Business Valuation"(BFBV) and Forensic Accounting and Corporate Governance (FACG) for many years. I am also Managing Partner at ValueQuest Capital LLP— an investment advisory boutique which helps its clients invest their capital in good quality businesses.

5 thoughts on “What Do Conservative Value Investors Look For In Risk Seeking Entrepreneurs?”

  2. Excellent article. Cherished every word of it and kept the interest levels high throughout the article. Marshmellow test is an eye opener and the way you brought the relation between how grown-ups behave equally well and the analogy to R and n. Easy to understand.

  3. As a passionate value investor who is currently an entrepreneur (Of a startup so not all principles outlined would directly transferable), finding investors who apply these filters is very rare!

    Considering this particular wish list, Jeff Bezos of Amazon would be right up there as the “conservative value investor’s” dream entrepreneur 🙂 This is a bit of a paradox considering that Amazon went 20 years without making any significant profits but only when you get into the details of his vision and Amazon’s business culture does it start to make sense. One amazing example where just looking at the financial numbers tells only half the story.

  4. Dear Prof,

    Enlightening and interesting article as always. However, i have a different view on the following:

    “The objective of our company is to increase the intrinsic value of our equity shares. We are not in business to grow bigger for the sake of size, nor to become more diversified, not to make the most or the best of anything, nor to provide jobs, have the most modern plants, the happiest customers, lead in new product development, or achieve any other status which has no relation to the economic use of capital. Any or all of these may be, from time to time, a means to our objective, but means and ends must never be confused. We are in the business solely to improve the inherent value of the equity shareholders’ equity in the company.”

    This in my humble opinion is really to confuse cause and effect. I dont think any entrepreneur goes into business with an objective of providing good returns to their shareholders. Let me take the most extreme example. When the company is in the initial stages and is private, the promoter and his/ her family and friends are the only shareholders. Even in that case i dont think all the promoters go in with the intention of earning the best returns for the shareholders – which is themselves and their family and friends. Let me add that i dont deny that many people go into business with the sole intention of becoming rich (lets call them short sighted promoters – SSP). Then there are others who go into business because they have identified ways to add value to certain set of people. For example, they might have identified a need which they can fulfil in a better way than existing alternatives. They are passionate about what they want to do and that is the primary driver for them. Of course they want to earn money but that is not their primary consideration. Lets call these people Intelligent Fanatics – IFs.

    Now i have not done any research on this and i may be wrong. But i feel that if we were to take a random set of truly great and enduring businesses, a majority of the promoters will be IFs and not SSPs. The focus of IFs is always on delivering the best product / service to their customers and in general to add value to all their stakeholders – including the customers, suppliers, employees etc. When they do this and do this with honesty and fairness to all stakeholders – the returns to shareholders will follow.

    1. very well said kidwai saab, coz extending the logic to its appropriate conclusion. A shrewed, money wise smart promoter wud be shrewed smart and money wise enough to ensure that he doesn’t share his $$$ with ANYONE.
      we ideally want smart, shrewed, money wise promoter for whom money is only a byproduct and he is a STOIC in his actions. A rare find by any stretch, but that is wat the game is!!.

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