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Sean: For those who are listening in right now and maybe they’re thinking, oh, there are also people who came to me and asked me to invest in their private or startups, what’s your advice? What are the first things you look at, first red flags that you check out before you even move on in the conversation?
Marvin: I realized that you’re investing in the person more. Unlike in stocks, in the stock market, there are ISO certifications, a lot of lawyers, and a lot of accountants. But when you invest in startups, there’s none of those. So it’s all in the skills and integrity of the person handling the business. There are also a lot of holes in there so it’s not just about the concept. It can be a food cart but if the entrepreneur is really good, that’s what you’re paying for, his or her ingenuity and also the risk factor which can be lost.
People always see the stock market as risky but the investments in business can be riskier because your money can go down to zero. In the stock market, your money will not even go down to zero. Especially when you buy the big ones that have dividends, your money will not be lost. So it’s just that the exposure of people here in the Philippines are more in savings accounts and real estate. And then when they get introduced to the stock market, they’d be like, oh, this is risky. I guess it’s still a young concept at least in our country. We’re not mature yet compared to other countries.
Sean: How about you, JC? What are the first flags you look at?
JC: For me, the first thing is, because it’s true, you’re really investing in the person. I was fortunate enough to invest with somebody. I can talk about this, Tent King. So Tent King is the number one tent provider in the Philippines. And then he made a separate company which is chair rentals.
So the first thing I look at is, how would I add value? And how would this person add value if I join or partner with them? Because it’s always, for me, our synergy should be one plus one equals three. So I look at first, definitely, is this person going to be an entrepreneur? Can he do it? Does he have the proof of concept? Has he already led businesses now that have already grown? Has he shown that he can manage people? And you know, Tent King is now nationwide. So when I looked at that guy, Sir Joey Espiritu, he’s my godfather now. And then he’s going to go into a business which is already in the wedding industry as well. He has all the networks in the wedding industry and then he’s going to sell the same product to the customer. I mean, different products to the same customers he already has. And then I saw how I add value to this.
So it’s like, it depends on your situation. What are your strengths as a company? And then if you’re going to invest in somebody, what value will you be able to add? And then, so aside from the person, aside from the value that they can add based on their strengths or the other businesses that they own, definitely the financials. At the end of the day, it’s about the return on investment. So you have to see what’s the business model, how are you going to earn money, how are you going to get your money back, how long will it take. So at the end of the day, it’s really about ROI.
So when you already see that the financial doesn’t make sense, but also you need to double check because a lot of startups have really bad accounting processes. I mean, usually if it’s a startup, their accounting is not yet polished. So I allow my people to check the accounting information. Even me, I also have a background in business school so I study the numbers. You just have to question them about the details regarding their FS, income statement, and everything. Somehow, you will know it. So you really have to do your research. You have to ask about the business model, who are their clients, how much sales do they do per month, per day, per contract. Then somehow you will be able to break it down, you will be able to catch if the FS is right. And I would recommend joining startups with proof of concept. For me, like, it’s very risky for me if there’s no proof of concept that they have done something. And it’s just an idea.
Marvin: Sometimes, for me, I look at their PowerPoint or sometimes the companies that are not making money yet, sometimes it’s like that. Or the idea is really interesting, but there’s no operations yet. There’s something like that.
Sean: Did you invest in it?
Marvin: Yes. For example, early this year, they haven’t operated yet. I mean they’ve quite started already, they’ve already operated but the lockdown affected them.
Sean: You check everything you like, the presentation, no proof of concept, you invested. Do you think it will still fly even after the pandemic?
Marvin: Of course, it’s hard to forecast, right? But the concept is good, the people behind it are good, that’s enough for me. If it does well, then that’s good. If it does not do well, what will I learn from it for my next investment? It’s always like that. It’s always what lesson you can learn from it.
Sean: My question now is, stemming from that is, do they give you updates as investors? Do they give you reports? Also on your end, JC, same question. How often?
Marvin: There is. But I just trust the people that much. So I think they’re going to a good job. They send reports. I try to glance into it but it’s not like, “Are they deceiving me? What happened here?” Like that. Because if I have doubts that they will just deceive me, then I am not going to invest in them to begin with. That’s it for me. If there’s any point that I think there will be a deception or maybe shady things like, “Why are their numbers like this?” I wouldn’t put my money on them in the first place. So there is, there are also reports about what’s the cash level at that point, what are the costs, what’s the impact, for example, of the pandemic, what actions they did to minimize the expenses. Other than that, I think you can always ask questions since you’re also part of it. It’s very transparent and they give timely reports, and the communication lines have been opened.
JC: For me, with the business that we invested on directly, definitely, we have board meetings per month. Now we do it via Zoom. And then we have all the financials, operations reports. It’s basically what Marv said. We have the income statement, liquidity ratios, how it was affected throughout the pandemic, how are we going to minimize the expenses. Go ahead Marv, you have something to say.
Marvin: I know now our difference. When JC invests, he becomes a partner. That’s why he has a big part in the decision making. And then when you say that you come in at what you bring to the table, he has an input. As for me, I’m only an investor. I know but I have no plans of running it. It’s either two of these things; JC chooses to be their partner or they really got a big investment that he has a large share in whatever business that there is. So that’s where you are going to see the proportion of money. As for me, there’s really no input.
- No, no. Actually, there are two things. There are two types in my investments. One was I have no input, like I am the money. But when the pandemic happened, we really stepped up. Because it’s a local business here in Batangas where it started, but now it’s nationwide, in the Philippines which is a thermal product. Like in every SM store in Luzon, they are all over there and they are starting in Vis-Min now.
So when the pandemic happened, I’m not supposed to intervene. But we decided to intervene because they were having big challenges. And we offered help, we offered marketing support. We bundled them with some of our products, with their promos. We tried to reach out to some of our database as well just to support the business. But honestly, I’m supposed to have no support for them because it’s only like a loan agreement.
And then what happened was, with the one I really invested, we have regular board meetings. It’s so fun, you know. Like when you come out of the board meetings, you’re so excited, you’re so hyped up because you learn so much from these people. It’s more than the, like, you have a lot to learn from people way ahead of your season as business people. I’ve met a lot through those experiences that’s why it’s really okay. It’s not only about transparency of updates, but just like what Marv was saying, synergy. Even if the shares are small, you still have a voice. People hear you.
Marvin: I look at a lot of things. Maybe out of a hundred, I only invested in two. It’s not that easy.
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