Backing the long term
Sep 05
One of the very first blogs I ever wrote was about the scanning the environmental landscape. I wrote about how using STEEPL can help you validate an idea.
The first process I go through when I look at investing in a business is to validate an idea. I simply use the STEEPL framework to see if the forces shaping the environment are in favour of the business proposal in front of me.
This week I made an investment in a fund (something I rarely do) and I thought it might be helpful to explain the process I went through in making the decision. I have to emphasize that this business angel blog should not be considered as investment advice. And to avoid any hint of bias, I will not name the fund I have decided to invest in as that would be wrong.
For the last few months, there has been one story which has been dominating the business agenda; the rising price of oil. The long term trends suggest that the demand for energy is increasing. The International Energy Agency has suggested that by 2030, the rise in demand will be around 50% of current levels. At the same time, the supply of oil, coal and gas is finite. Long term prices are going to rise.
However, there are other concerns on the energy agenda. It struck me when candidate Obama said that he would work to make the USA independent of foreign oil within 10 years. The recent trouble in Georgia has again highlighted the issue of energy security in terms of the reliability of dealing with a newly resurgent Russia.
All of the above (STEEPL) analysis got me to look at alternative energy as an area for investment. The issue then was would I invest in individual businesses in this space or in a fund? The concern for me was that although I have a good feeling for the long term trend, when it came to which sector (wind, solar, geothermal, biofuels, efficiency etc) I had no idea. The area is a very technical one and I felt that I do need expertise in making the right decisions.
So I then looked at funds in this area and assessed the different fund managers who operate in this space and then finally made my choice and decided to invest in a fund.
The reason for outlining this process was to demonstrate that as an investor you go through a funneling process. You start out looking at wide angles and then successively narrow your selection criteria. If you are pitching to an investor, you need to show that you understand this process and make them feel comfortable that they are backing the right skills within the right sector within the right long term growth area.
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