Long, long ago when my head was full of black hair and foolish ideas I managed to attend a small meet by the senior Mr. Munjal. When asked by a journalist ‘should I buy Hero Honda shares’ he said ‘all 2 wheeler companies will go through a boom’. He was so right – Hero Honda, TVS Suzuki, Bajaj Auto – all made handsome money for their shareholder.

The problem for a investor in ‘new’ companies is to know which companies will fail! Imagine 10,000 boys play cricket in that famous Dadar – Shivaji park area. To have picked Sachin Tendulkar, Sunil Gavaskar, Vengsarkar among those MILLIONS (over the years) would have meant you needed AMAZING SKILLS at saying NO. Assuming that 10,00,000 people played in this era, how many ‘no’ would you have said? Similarly when you see company management (did I tell you meeting the management is not at all a good idea UNLESS you have done the home work?) you have to look for ‘inspite of this’ will it succeed? Arrogant promoter, poor HR skills, poor PR skills, not enough margin, poor cash flow management, too much emphasis on making new products, too much time from drawing board to market, pathetic sales team – these are very obvious signs.

However, a poor company may suddenly come out with a great product – and it could give them say a 6 month advantage over its competition. Is this good enough a reason to look at the company? No. A company which does not have a good process of taking a product from drawing board to good sustainable sales WILL never translate a good idea to a ‘PAT’ situation. The ground rules do not change.

So longevity of a company is a huge, huge, huge advantage – at least you are sure that the company will live for another 30 years – which could be your life time too. So for a 50+ year old investor like me HAS TO BE ‘will this company’s product last another 30 years?

Now take the huge huge disadvantage of a venture capital investor. He does not have that luxury. He works with about 50% of the information that he would ‘ideally’ like to have. He has to see ‘will the company succeed against the odds’. That is tough. A regular investor has to say more No than Yes. A venture capitalist has to say ‘yes’ to some ideas which look very difficult, with a team without much experience, chance of funds evaporating, competition,….AND the VC has to bet substantial money to make some impact!

Being a CA and trained to suspect a promoter, it is not easy to be a Vee Cee except as a fact finder and number cruncher. The ‘gut’ call has to be taken by the ‘owner’ of the fund. If you are the number cruncher and the ‘owner’ it is likely that you will say only ‘no’.

However, I have seen some Vee Cee who have no ability to do a decent due diligence – as well as some Vee Cee who do not do partial booking of profit! Beats me.

Overconfidence is the single largest KILLER of ‘good’ returns. The other one is waiting for ‘great’ returns.