For a family office investment office, the foundational task is to clearly define the family's investment objectives and risk tolerance. This critical analysis lays the groundwork for all subsequent portfolio decisions.
Determining Investment Objectives
- Align objectives with the family's overarching goals and values
- Considerations may include capital preservation, growth, income, impact investing, etc.
- Establish clear, measurable targets for portfolio performance
Assessing Risk Tolerance
- Evaluate the family's willingness and ability to withstand portfolio volatility
- Consider factors like time horizon, liquidity needs, and the family's risk profile
- Develop a risk management framework to mitigate undesirable outcomes
Analyzing Investment Outcomes
- Model the impact of different investment strategies on the family's finances
- Stress test portfolios against potential market conditions and scenarios
- Understand how investment results may affect the family's operations
Documenting the Investment Policy Statement
- Codify the family's objectives, risk parameters, and decision-making processes
- Use this as a guiding framework for all investment activities
By thoughtfully defining the investment objectives and risk tolerance upfront, the family office investment team can construct a portfolio aligned with the family's unique circumstances and long-term goals.
Do investors decide to gamble their money on any startup pitch in just 20 minutes?
While watching shows like Shark Tanks, you might think that it just takes 40 minutes and a “gut feeling” on the investors’ part, remember that it is just entertainment. To make it as exciting as a reality show, they make it this way. In reality, investing is an important decision that no one takes on a whim or in just a few minutes. How does it happen?
Investing in a business isn't just about numbers on a spreadsheet or a flashy presentation. It's a decision that's carefully weighed, considering multiple factors and insights garnered through a series of meetings, discussions, and evaluations.
1. Initial Meeting: It all begins with an initial meeting where the entrepreneur presents their business idea. This is the first opportunity for investors to assess the potential of the venture and the capabilities of the founding team.
2. Thorough Discussions: Following the initial meeting, there are likely to be several rounds of discussions. Investors dive deeper into the intricacies of the business model, market potential, competitive landscape, and scalability. These discussions provide valuable insights into the entrepreneur's vision and strategy.
3. Due Diligence: Once the discussions progress positively, investors conduct due diligence to validate the claims made in the pitch. This involves a comprehensive review of financial statements, market research, legal documents, and any other relevant information. It's a critical step to ensure transparency and mitigate risks.
4. Evaluation of Risks and Returns: Investors carefully evaluate the risks associated with the investment opportunity against the potential returns. They assess factors such as market volatility, competition, regulatory challenges, and operational risks to make an informed decision.
5. Alignment with Investment Thesis: Every investor has a specific investment thesis or strategy that guides their decision-making process. They evaluate whether the pitch aligns with their investment thesis and fits into their portfolio strategy.
6. Team Dynamics: Investors pay close attention to the founding team and their dynamics. They look for a diverse and capable team with a track record of execution and the ability to navigate challenges effectively.
7. Exit Strategy: Investors consider the entrepreneur's proposed exit strategy. They evaluate whether there's a clear path to liquidity and how they can realize returns on their investment in the future.
Ultimately, the decision to invest hinges on a combination of factors, including the strength of the business idea, the capabilities of the founding team, market potential, and alignment with the investor's objectives. It's a complex process that requires careful consideration and thorough analysis to identify promising investment opportunities.
#InvestmentDecision#DueDiligence#InvestmentThesis#PortfolioStrategy#RiskManagement
I spoke with Chad Smith, C(k)P®, Managing Partner of Reveille Wealth Management, on a recent episode of "The 7 in 7 Show with Zack Ellison" and was very impressed with his approach to managing investment portfolios.
Reveille's systematic, disciplined, and process-driven approach to investing has led to strong results and offers significant advantages for savvy investors.
✔️ Consistency: Chad's approach establishes a framework for consistent decision-making, avoiding impulsive reactions to market fluctuations and short-term noise.
✔️ Objective Decision-Making: Emotions can cloud judgment, but Chad's disciplined process eliminates biases and ensures investment decisions are based on objective criteria.
✔️ Risk Management: With a focus on diversification and risk management strategies, Chad helps clients mitigate the impact of individual investment failures.
✔️ Enhanced Confidence: Chad's structured approach provides clarity and reduces uncertainty, increasing investors' confidence in navigating market fluctuations.
✔️ Improved Decision-Making: Thorough research, data analysis, and predefined criteria guide Chad's investment decisions, resulting in informed choices for clients.
✔️ Long-Term Focus: Chad's disciplined strategy encourages clients to maintain a long-term perspective, avoiding short-term distractions and benefiting from the power of compounding.
View the full episode (#12) at www.7in7show.com.
#wealthmanagement#investing#investmentmanagement#portfoliomanagement#financialplanning
Most LPs start their process by looking at deals.
That’s (literally) the last thing you should do.
Starting with deal evaluation is like shopping for a house without knowing your budget or preferred neighborhood.
The most sophisticated investors I work with follow these 5 steps in this order when looking to invest:
1. Setting clear investment goals (before looking at a single deal)
2. Defining their risk tolerance and understand the risks involved
3. Understanding fees and how waterfalls work
4. Vetting sponsors
5. Evaluating deals
The order matters.
The perfect, up-to-date data isn't always available.
Here's how to make confident decisions with what you have.
In situations with limited data, I’d guide stakeholders through balancing
urgency with available information. The goal is to make an informed choice
that minimizes risk and leverages what we do know.
Here’s 5 steps to approach it:
1. Clarify the Decision Context:
First, make sure everyone is clear about the business objective.
What’s the goal and does everyone understand the desired outcome?
Determine how urgent is the decision is to help prioritize the most
critical data points.
2. Identify Key Variables:
Focus on What’s Known. Even with limited data, there are likely a few key metrics or insights you can rely on. Use Assumptions. Document assumptions to revisit later and adjust if more data becomes available.
3. Scenario Analysis:
Build Multiple Scenarios. With limited data, create a few different scenarios
to evaluate the range of possible outcomes. For each scenario identify which variables have the biggest impact on the outcome. This helps stakeholders understand where uncertainty exists and where they need to act conservatively or aggressively.
4. Risk Assessment:
Beyond numbers, incorporate qualitative factors such as, how much risk is acceptable? What’s the potential impact on the company? This helps put the decision into context, even when data isn’t perfect. Build contingencies, and make decisions in phases, allowing for adjustments as more data is available.
5. Use Frameworks:
Apply frameworks like the Pros-Cons Matrix, Cost-Benefit Analysis, or
SWOT Analysis to help weigh options methodically. Even when data is
sparse, structured approaches can identify critical elements to focus on.
Use Benchmarking. Comparing performance to similar companies can offer insights. Look at industry reports, peer performance, and broader market trends.
Act quickly but responsibly. At the end of the day, when you have limited data, it’s about making the best possible decision with what you have, being mindful of risk, and staying agile.
Helpful tips:
- Acknowledge limitations: Overconfidence can skew perception of risks
and opportunities leading to substandard decisions.
- Seek external perspectives: Consult with industry experts, consultants,
or analysts to help gain additional insights.
- Be adaptable and flexible: Remain open to adjusting decisions as new
information becomes available.
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💡 Investing in startups isn’t just about betting on big ideas...
It’s about backing the right people, at the right time, in the right space.
Once you’ve built a pipeline of early-stage investment opportunities, the next challenge begins: selecting the ones worth backing. This is where an investment thesis comes in.
Think of it as your filter, a set of principles that guides what you say “yes” to (and, more importantly, what you walk away from).
Your thesis might include:
✅ Industries you actually understand
✅ Your target return profile
✅ Preferred business models (B2B vs B2C)
✅ Geographic scope
✅ Stage of the company
Then comes due diligence, evaluating the founding team, product, market, traction, financials, and legal standing. Even if everything looks good on paper, you still have to trust your gut.
Because in startups, the only guarantee is that things always change. And if you don’t understand what you’re investing in then you’re not investing, you’re gambling.
🧠 Great investors stay in their lane. They know their strengths, build their edge, and pass on “shiny” deals that don’t align.
This is why investing in, or alongside, funds is so appealing to many investors.
Putting your capital to work through experts with track records of sourcing and selecting great investments can offer access to opportunities you would never had the privilege of participating in before.
Did I miss anything? What's your process for selecting great opportunities? What red flags have you unearthed in the past?
#venturecapital#investing#privatemarkets#duediligence#shuttle#retailinvestors