Investment Thesis: Don Hutchison (Part 2)

SM: What are your key investments and the rationale behind making those
investments. This will help entrepreneurs understand how you process deals.

DH: In truth, ‘it all depends on the deal’ is a legitimate answer here. That said, there are a few key considerations I run through in most deals.

First, do I think the idea represented makes sense? I.e., I’ve been a decent salesmen, marketer and promoter and I’m an economist at heart. So, do I think the proposed product, service or whatever solves a material problem that people care enough about to address? Or, is it simply so enticing the target audience will be compelled to avail themselves of the
offering? Could I sell this to others with passion and conviction? If we were successful, would there be multiple potential buyers for the company representing different horizontal and vertical interests?

The IPO market is virtually non-existent, and I’m uncertain when it will return– though I think it will eventually. In the interim, to recover your capital (and funds to invest again) your portfolio companies either have to be bought or produce so much cash they can flow income to investors. In tech the latter option is a rarity, so you have to make sober assessments re: potential viability as an acquisition target.

Next, who are the folks leading the charge? Are they people who take the game seriously, but not themselves? Do they want or need help? If they do, am I or my cohorts the people to provide it? Are they realistic about their challenges and opportunities, and is this reflected in issues such as valuation? Back to the founders for a second–if everything else appears adequately promising, what is their motivation? Are they doing something they love and feel strongly about? Starting a business is hard. Truly hard. If a founder doesn’t have personal passion–the proverbial ‘fire in the belly’ for what they’re doing they may not be a good choice to back. On the other hand, if their passion severely warps their perspective they may difficult to back as well.

Another important consideration is market reach; e.g., if we build a cool product how will we inform and attract our target audience?

SM: What kinds of deals are you interested in seeing? DH: Relatively early stage plays that fit somewhere into the three broad areas of interest expressed above. The closer the deal is to an idea than early execution the stronger the players need to be or the more brilliant the idea.

(to be continued)

This segment is part 2 in the series : Investment Thesis: Don Hutchison
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