Editor’s note: This article was first published in July 2010. It describes Arthur Rock, born in 1926, in the present tense as actively screening deals, which reflects 2010.
Arthur Rock is one of the world’s biggest private investors. For him, investing, whether in the stock market or in a business, is not a matter of chance. It is a matter of in-depth analysis of a project and of the people in charge of running it. What criteria does Arthur Rock use when he invests?
Arthur receives an average of 500 investment proposals a year. He picks only four or five at most. As a professional investor, he knows exactly what he is looking for and, above all, how to spot investment opportunities.
Good investors believe that most entrepreneurs don’t fail because of a bad business plan or a flawed strategy. They start from the assumption that most business owners have worked out a good strategy before starting their business.
They put failure down to how the business is run: to hiring capable people and, above all, to the track record of the people who make up the company’s team. Imagine for a moment that a large company with plenty of capital hires a manager who has racked up more than ten “trophies” for incompetence at running companies. Obviously, the investor would back out, even if he liked the idea.
They don’t analyze long-term financial projections, since nobody can predict market trends or growth in sales and consumption years in advance.
They look very carefully at who is going to manage the company and how. That is the first thing they analyze. They know that investing is not a game of chance if they invest in people rather than in brand names.
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For them, specific information is power. If they don’t know or have never heard of the sales director who is going to run a company, they don’t take the risk, at least not with large sums.
Once this first analysis of the people who will run the company is done, the rest of the analysis follows:
- Business plan
- Strategy
- Investment required
- The company’s starting capital
- The market it will cover
This may answer a question some entrepreneurs ask: why it is so hard for them to find a private investor for their business. The answer is trust. Trust and reliability are what you have to sell to an investor.
Further reading
- Investing in a merger: the best time to invest
- The 7 levels of investors
- How to be a successful businessperson
- Start a business or buy one?
- 5 ways to grow your business
Featured image: Christopher Michel, CC BY 2.0, via Wikimedia Commons.
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