Winning two Formula 1 World Championships takes more than just a driver racing around a track. The amount of hours and effort put in leading up to a race is massive.
Tank Stream Ventures investment manager Rui Rodrigues worked behind the scenes on the two time world championship winning Renault F1 team with racing legend Fernando Alonso.
Rodrigues was involved in F1 racing for about seven years. He managed Renault’s testing team in the lead up to its F1 wins in 2005 and 2006, looking after the operations and technical elements behind racing and travelling the world testing cars and engines.
But what he learnt in his F1 days has helped inform investment decisions today, including more recently funding Australian startup Pocketbook which streamlines your bank accounts to manage your spending habits, and taxi booking app GoCatch.
Rodrigues told Business Insider that having rigorous and structured processes, like the ones he implemented to keep race cars in top form, are parallel to Tank Stream’s investment processes and critical when deciding whether or not to pour money into a startup.
“In Formula 1 we take inspiration from aviation where they have check lists for everything, it’s basically what we are doing here [at Tank Steam Ventures], we have check lists for everything,” he said.
Deciding on whether to invest in a startup is a lengthy, detailed process – something he says many entrepreneurs don’t realise. This can lead to frustration as they usually want an answer right away.
“People have the impression that investors they watch a pitch and then they make an investment decision after ten minutes of meeting the entrepreneurs, it’s not like that, it doesn’t happen with us,” he said.
“It’s a really rigid process and that’s probably the biggest inspiration I got from Formula 1.
“There’s a whole set of check lists that we need to go through and that we go through with every startup.”
Rodrigues said having the equivalent of startup safety and performance checks is important to ensure the venture has what it takes to get over the line.
“In Formula 1 the main objective was to not overlook any technical or operational aspects that would compromise the team finishing a race,” he said.
“So rather than working towards winning a race we actually optimise the processes to avoid any errors or any technical problems within that small context of the car, the engine and the team.
“It’s basically the same thing we’re doing here, we just need to make sure we look at all the aspects of a business to not overlook and pass on a significant opportunity of a company that could become huge in the future.”
The investment criteria is a long list he uses to analyse each startup so nothing is overlooked.
“We had processes in F1, we had processes for the testing phase of any new product that went into the race car so it needed to follow a certain set of tests, different tests, different validations, different targets that they needed to achieve and overcome,” he said.
“With all those targets we used to set up milestones so if ever a specific validation test went up to the next stage that was because it had achieved a certain number of objectives that we had set up at the beginning.
“This is similar to what we’re doing here, as we go through the process of doing a due diligence on each new company, we make sure that they tick all the boxes and to tick all these boxes there are then sub boxes of criteria for each one of these big items that we look at.”
Having strict, systematic processes in place helps mitigate the risk of getting carried away with the excitement one idea can generate, it keeps you focussed so the final investment decision is both thorough and reliable.
“The main thing is defining your objectives at the beginning and then stick to what you’ve defined,” Rodrigues said. “It’s not just liking an idea and getting excited it’s about going through the while process.”
The staged process includes analysing the team, market opportunity and size, competition, differentiating factors, financials, and defensibility.
“We like to analyse the defensibility,” he said, adding defensibility means how well a venture can protect what they’re doing from other teams in the future.
“Imagine someone is trying to copy what they’re doing, how do they actually protect themselves,” he said.
“We always like to ask the question ‘what if Google is doing the same thing you’re doing? What would happen to the company?’ To try and see if they have some IP within the company to try and protect themselves from any external factor or any external company coming in and trying to disrupt what they’re trying to do.”
But like in F1 racing, Rodrigues said the most important element is the team.
“We like to see entrepreneurs who show courage and resilience,” he said.
“Apart from all the technical and the business skills that they need to have we need to identify that they have the right amount of courage and resilience to take their venture through the whole process which usually implies going through the ups and downs.”
He said like in racing, some ventures just won’t workout and that’s OK – because it’s about playing the long game.
“We know that we will invest in companies that won’t work,” he said. “The failure rate is quite high. So we do know that we will have some failures within the investments that we make but at the same time we need to make sure we don’t pass up on any opportunity that could become huge in the next five to 10 years.”
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