INVESTING
MICHAEL JORDAAN ’ S INVESTMENT STRATEGY
By Rudolph Muller
Michael Jordaan is one of the best chief executives South
Africa has ever produced . Under his leadership , FNB showed exceptional growth and became the technology leader in the local banking market . FNB was also awarded the title of the world ’ s most innovative bank in the 2012 Finacle Global Banking Innovation Awards .
So , when Jordaan resigned as FNB CEO in 2014 to start his own private investment company , Montegray Capital , people took note . With his knowledge of financial systems and technology , people expected him to choose technology start-ups which were likely to show strong growth and become profitable businesses .
Jordaan believes that start-ups are essential to human progress and are the best vehicles to take new ideas forward . “ Large corporations and governments can also take society forward , but are far more likely to do so in a slow , incremental manner . Start-ups can move fast , take risks , and naturally go where no one else has been before ,” Jordaan told MyBroadband .
Even with the selective investment process , most venture capitalists still expect half of their investments to fail – with portfolio outperformance coming from the top 10-20 % of investments . The reason for turning down most applications , said Jordaan , is that some start-ups only bring him an idea and have not tried to gain any traction in the market yet . “ People overvalue ideas and undervalue implementation ,” said Jordaan .
The high risk associated with early start-up investments makes many investors shy away from venture capitalism , but Jordaan believes risk is not inherently bad . “ In fact , the right type of risk is good because it is exactly that risk which allows for significant rewards . The main thing is that one must understand the risk and use deep knowledge and intense hard work to reduce the risk better than any competitor . As an investor , one can also diversify risks somewhat by having a portfolio of investments in different entrepreneurs and different sectors . Entrepreneurs do not have that luxury and need to be agile enough to pivot their start-ups to reduce risk .”
One of the main criteria for investing and getting involved in a new business is that there is a business concept which is significantly better than the status quo , said Jordaan . “ Of course the business idea needs to be backed up by a great team – the most important investment criteria – which has a track record of execution .”
He also has a long list of things that disqualify businesses from investments from Montegray Capital . “ We need to be highly selective as the investments are illiquid and need to be held for a long period . Once you are in , you are committed for a long time ,” said Jordaan .
Jordaan ’ s advice for starting a business
• Stop dreaming about it and start doing it .
• Make sure you are an expert on the topic , as the last 1 % of knowledge can be as useful as the preceding 99 %.
• Get a partner .
• Listen intently to your early customers and adapt the whole time .
• Make sure you are solving real problems .
• Keep your costs low .
• Sell all the time .
With so many other asset classes available to investors , it raises the question whether Jordaan believes his venture capital fund will outperform more traditional investments like property or shares . He is confident this is achievable .
“ I ’ m fortunate to be investing only my kids ’ inheritance , so I am basically accountable to my family . It allows me to take a long-term view and expend all my energy on the investments themselves , without having to explain my decisions to third parties or being second-guessed by investors who have different , short-term requirements .” ■
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