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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