7 Things I Look For When Investing In Entrepreneurs

Peter Roberts is the sort of investor you want on your team. The 75-year-old has been there and done it as a founder, marshalling his biggest recent success, PureGym, to a £160 million turnover and a place in the Sunday Times Fast Track 100. He’s also been there and done it as an investor, fuelling several exciting start-ups on their journeys towards rapid growth. And because he’s a founder first and a backer second, Peter has that rare characteristic among investors – entrepreneurial empathy. Unlike many financiers who’ve never been through the mangle of launching a business, he knows the score. He understands the excitement, pain, sacrifice, obsession – the simple truth that the course of true entrepreneurship never did run smooth. “While growing my first business, I wasn’t far off from having a breakdown,” he tells us during this interview. 

Most importantly, you want Peter on your team because he’s in it for more than just the cash. He loves the cut and thrust of start-up life and he relishes mentoring young entrepreneurs. So, there’s no better person to share insights on how entrepreneurial investors such as Peter make their decisions. 

Here, the serial founder and investor reveals the five most important things he looks for when deciding where to put his money. 

1) Spark, buzz, passion

The word ‘passion’ appears so often in the context of start-ups that it’s become a well-worn cliché. But that doesn’t make it any less important. Indeed, it’s the first and most vital thing Peter looks for. Without it, you’ve got no chance.  

“Today, out of more than 100 unquoted investments, I’m an active investor in 12 start-ups,” he says. “They range from fintech, healthcare and leisure to food and drink and clothing. What do I look for when investing? It’s all about the people. Obviously, you’ve got to check they’re in the right market and that kind of thing, but the passion they show is far more important. It’s number one. If they’re incredibly passionate, they will get over lots of hurdles. I get excited when I see that passion – it reminds me of my early days in business. 

“Without that spark, that buzz, you’re nowhere. If entrepreneurs really believe in what they’re doing, you sit up and listen. You’re going to study the business plan, of course, but the older I get, the more I realise that almost everything hinges on the people behind the plan. You can have all the marketing, tech and creativity in the world, but passion and belief are the key drivers.”

2) The ability to listen

Next on Peter’s list is the skill of absorbing information – and reacting appropriately. It’s all very well having a ton of energy but if you can’t – or won’t – listen to others, you’re more likely to fail.

“This is another big one,” says Peter. “Are they prepared to listen? Lots of entrepreneurs are brilliant in their area of expertise, whatever that may be. But generally, their experience of other things in the big wide world is close to zero because they’re young and dedicated to their thing. So, when they finally find themselves having to deal with something different – whether it be finance, marketing, people, employment law, IP, whatever – they’re lambs to the slaughter. Why wouldn’t they be when they’ve never been exposed to those things before? It’s dangerous when founders think they can walk on water. They have to be prepared to listen to different people.”

3) Discipline 

The third attribute Peter likes to see from founders is a willingness to focus on areas that don’t necessarily fire them up – subjects they may well file under ‘the boring stuff’.

“Entrepreneurs tend to be inward-looking and have brilliant knowledge of their core area,” says the PureGym founder. “But getting them to widen their focus can be difficult. For example, have they really thought about their finances? Getting them to do two- and three-year forward cashflows is often like getting blood out of a stone. I don’t ask for these plans because I think they’ll be accurate; I ask to get founders thinking about the what-ifs. Are they going to run out of money in 12 months? What are they going to do to reduce that threat? Should they change strategy? 

“Working on financial control and management is rather boring for many entrepreneurs. But you do have to bring it into your business reasonably early, otherwise you can get tripped up, particularly if you’re growing fast. That’s why I always tell the teams who are doing brilliantly to get their management teams in place and key disciplines sorted before they unleash the breakneck growth. I was lucky as an entrepreneur because my boards helped me get into healthy positions. When we finally pressed the ‘go’ button, we could handle the growth. But if you don’t think ahead and get the business well prepared, you find that in three months your position has completely changed and you don’t have the right people, enough money or the correct technology.”

4) Long-term thinking

Where do you see yourself in ten years? It’s a classic interview question but also one that founders should be able to answer, argues Peter. Entrepreneurs who consider their exit strategy even while launching their start-ups are best placed to succeed. Here’s why.

“Entrepreneurs tend to think only a year or two ahead,” says Peter. “But actually you should be considering your exit – and even who the target buyer might be – from day one. The point is, most founders do exit. Very few stick around for years to manage large, mature businesses. If you plan your exit strategy from the beginning, you will shape your business in the best possible way.”

5) Humility 

The serial investor also looks for a degree of humility in founders. Not too much, mind you – simply an acceptance that competitors exist and can be learnt from. Taking this on board requires the occasional removal of those powerful entrepreneurial blinkers.

“Many founders don’t even think about competitors because they’re so confident and focused on what they’re doing,” says Peter. “But a little humility goes a long way. There are others in your trade and you should either learn from what they’re doing or be aware of their strategy. That’s why I look for a smidgen of humbleness and market awareness in the entrepreneurs I back. Do they know their marketplace? Have they done their analysis? Do they really understand what they’re walking into? They’re often so immersed in driving the business forward that they can’t see anything else. That can be highly effective, but the path forward isn’t a straight line, so they need to be aware of their surroundings, keep thinking ahead and constantly considering what the banana skins might be.”

6) Inspirational people skills 

You can come up with the world’s best business idea, but unless you motivate your team to fire on all cylinders, your start-up won’t reach its potential. Peter gives an example: “The COO we brought in at PureGym did a fantastic job because he managed to instil a spirit of ownership among our gym managers. He made them feel that each gym was their business and they should be proud of it. Creating such a culture upped performance across the board and made a phenomenal difference to the business, resulting in a happier, more fulfilled team.” 

7) A co-founder or a strong core team

The seventh and final attribute that Peter likes to see when investing is a co-founder. This isn’t a deal-breaker – 30% of his investments are with solo entrepreneurs – but he’s clear that start-ups created by duos, or more, are more likely to succeed. 

“I’m not a big believer in launching a company on your own,” says Peter. “When I look back on all my businesses, I’ve always had a partner. Each time I chose that person because they had the skills and disciplines that I didn’t have. With my first business – Langdale – I knew nothing about marketing, so I chose a marketeer. For another business, I found a sound finance man. It’s bloody lonely doing all this on your own, both mentally and physically. It helps if you have support, back-up, a partner to bounce ideas off. If you don’t have a co-founder, you need to bring people in who can support you. When I look down my list of investments, 70% have co-founders. But of course, there is an inherent danger in business partners – the two or more of you have to get on. If you don’t, you’re dead.”

Wrapping up

Behind Peter Roberts’ opinions are decades of entrepreneurial success and investor wisdom. It’s telling that the most critical item on his checklist is, without doubt, seeing a wild, exhilarated, alchemist’s glint in a founder’s eyes (also known as ‘passion’). Why? Because without energy and belief, start-ups have little chance of making it. To move the investor – to push their hand towards their chequebook – the backer must feel some of the excitement and rush that the entrepreneur feels. Once that movement is in motion, founders can further pull the backer’s pen to paper by revealing the other attributes listed above, especially a tendency to listen – the yin to balance the yang of undoubting, starry-eyed belief. 

MORE PEARLS OF WISDOM FROM PETER

On fast growth…

“If you find that you have a unique product or service, you should go for it. We’re in a fast-changing world and that opportunity might not be there for long. But be careful not to go for it before you’re ready. Get the building blocks in place first. That’s what we did at PureGym; we did a lot of block building before pressing ‘go’. 

“Then, when you are ready, go flat-out. The difficulty many young entrepreneurs face is that going flat-out needs money and management skills. Suddenly they’re not on their own anymore, they can’t walk on water, and they have to build and manage a team.”

On dealing with stressful times…

“You’ve got to talk to people; share the load. I had a hellish time while building my first business – Langdale. We were mid-recession and the bank tried to pull the rug from under us. The business was going well, but it could have busted the business overnight. Friends had put money in and I was responsible for many people. I was saved by my chairman, who wrote to the bank’s chairman. The experience nearly broke me. So, my advice is to maintain your network of business friends. Sometimes, your family and other friends might not understand what’s going on in your business world, but if you’ve got people who’ve been through similar things, you can sit down with them, have a beer and say: ‘I’m in the s***’. As an entrepreneur, you need good moral and mental support.”

On investors…

“I tell all my entrepreneurs that they should begin with angel money if they possibly can – in rounds one, two and even three. Angel investors will leave you alone, particularly if it’s Enterprise Investment Scheme (EIS) money. Problems tend to occur when you bring in institutional-type funding because the new financier’s agenda is often different from the entrepreneur’s agenda. In theory, it should be the same, but the plan of how you get from A to B is not always agreed. I’ve seen it happen so many times. When things are going fine, life’s easy, but when things go less well (and let’s face it, it’s always a rocky road in business), life can get challenging. To counter the risk, entrepreneurs should get true independents on their boards – people who know how to run a business, not an investment fund. Institutional investors are getting much better at understanding business, but none are entrepreneurs. They’ve been brought up in a completely different environment. I always advise my guys to build up their business’s value to such a level that they can maintain control when institutional funding finally arrives.”

On signing a shareholders’ agreement…

“Your shareholders’ agreement is one of the most important things you’ll ever sign. You need help with it. Get advice from someone who knows the market. That’s so important because you’re tying yourself to someone else for five years, maybe longer. And if there’s something in there that you can’t get out of, you’re potentially creating lots of avoidable and unnecessary problems for yourself.”