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by Victor Cianni

Chief Investment Officer at Alpian

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In the dynamic world of finance, understanding the ‘Investor vs. Entrepreneur’ dichotomy is crucial for anyone looking to make their mark in investments. There are fundamental differences in the way investors and entrepreneurs think about the world of investment.

This exploration into the entrepreneurial mindset will not only reveal these distinct approaches but also equip you with valuable insights and practical investment ideas. Dive in to uncover the strategic thinking that shapes successful investments from an entrepreneur’s viewpoint.

First of all, what is an investor?

First and foremost, let’s define what an investor is. When you consult any dictionary for the term ‘investor,’ you’ll typically find something along these lines: A person who allocates capital to various financial ventures, properties, etc., anticipating a future financial return or profit.

The phrase ‘Put money in and expect returns’ has always struck me as overly simplistic.

True, you need capital and opportunities for investment, but the financial markets are a daily showcase of intriguing narratives, attractive opportunities, and the promise of returns for those who rigorously explore and analyse them. This applies irrespective of the size of one’s portfolio or their level of expertise.

However, the reality of being an investor is far from simple. After all, not every investment yields returns, especially positive ones.

A successful investor isn’t just someone who puts money into ventures. They are adept at analysing potential investments, developing well-founded expectations for future returns, and making decisions grounded in knowledge and insight.

But here’s the crux: the essence of investing revolves around the cycle of investing money and awaiting outcomes.

Yet, what transpires on the other side of the market – before you invest your capital and while you await returns – is a different world altogether.

investor in front of a building

Whenever I find myself getting carried away by the allure of the markets, I remind myself of a quote from Paul Bouchey that I once read in a financial magazine:

Most advisers and investors forget that the capital markets were not created to provide them with returns. The capital markets were created to give money to businesses and entrepreneurs to drive the economy and to offload risk onto investors. And it does a wonderful job at that.

Herein lies a wealth of lessons waiting to be unearthed.

The investor vs. entrepreneur mindset

Investors and entrepreneurs might seem similar at first, but their differences is key to grasping the nuances of successful investment strategies and how they are influenced by varying perspectives on growth and time.

The end goal vs. the journey

When we talk about investors, their primary focus often zooms in on one key objective: the growth of the company. This growth is perceived as a harbinger of potential profits. However, for entrepreneurs, company growth is just a piece of a much larger puzzle.

In essence, investors are goal-oriented; they look at the end result. Entrepreneurs, on the other hand, are journey-oriented, paying close attention to the trajectory.

For them, growth is not merely a gateway to future returns. It represents a series of strategic decisions, each having significant and varied impacts over time — on the company itself, its workforce, its customer base, the markets it serves, and the environment it inhabits.

Different time scales

Investors and entrepreneurs also think on different time scales.

Investors typically have time-bound expectations, seeking returns over a set period. Entrepreneurs, conversely, embrace a more expansive view, planning and strategising with a long-term vision in mind.

The point of convergence — an investment — is a fleeting moment in time where these two outlooks momentarily align, though their deeper, long-term interests might diverge significantly. If you need proof of this, I would encourage you to join a shareholder meeting once in your lifetime.

An interesting fact is that these disconnections have encouraged the emergence of funding alternatives for companies: Business angels, private equity, and various forms of peer-to-per financing like crowdfunding, crowd giving, crowd lending, etc. These models reflect a shifting landscape, one that increasingly seeks to align the interests of investors and entrepreneurs, at least on the surface.

So, what should be the takeaway here for aspiring investors? Before calibrating your expectations, try to gain a holistic picture of the company and its potential trajectory.

Understanding the business owners’ past decisions and future vision is critical. Many great investors, such as Warren Buffet, have put the relationship with company management at the centre of their investment philosophy.

The shared risks

Before sharing potential returns, you share risks. When you invest, your money literally embarks on the company’s journey and you become one of the first risk-bearers alongside the entrepreneurs.

That’s why risk is such a central notion in finance: You accept the risks and uncertainties associated with an investment in the hope that you will be rewarded.

Evaluating the risks associated with an investment is a complex yet critical task. Risks come in two forms: the ‘known’ risks, which can be anticipated and planned for, and the ‘unknown’ risks, often unforeseen and potentially more damaging. These unknown risks are the ones most likely to impact your investments negatively and challenge your strategic planning.

One of the hardest parts of investing is not actually making the decision to invest, but what follows. We make a decision to invest and we form an expectation at some point in time. From that point in time, this expectation will be challenged every day by reality.

woman jumping towards water

The investment can drop significantly in value one day on the back of bad news, or its price can jump all of a sudden without explanations. It is also possible that nothing happens for a long period of time. Our assumptions and nerves get constantly tested by the market, peers, etc. The fact is that while we expect returns, many things can happen.

There are ways to mitigate the discrepancy between our expectations and the unfolding events, or at least to manage our gut reactions. But risks are inevitable. Financial markets were precisely created to transfer risks from entrepreneurs to investors.

Interested in deepening your understanding of risk management in investments? Explore our insights in the article “About the risk of not taking a risk“.

The shared responsibilities

When you choose to invest, your capital embarks on a journey intimately tied to the company’s fortunes. As an investor, you align your fate with that of the entrepreneurs, becoming a primary risk-bearer in the venture.

Driving businesses and economies sometimes implies that entrepreneurs must make difficult decisions, or at least decisions that are not necessarily aligned with your set of values.

As an investor, you might indirectly put additional pressure on these decisions to be taken, as not honouring the financial expectations of investors sometimes has more consequences for companies than firing employees. Not to mention the scandals that can occur. It does not feel great to see a company you believed in, and are associated with, make newspaper headlines for the wrong reasons.

There is a big focus nowadays on responsible investing, transparency, corporate responsibility, etc. While this could potentially lead to a better financial world, some argue it comes at the detriment of potential returns.

We will leave this debate for another day. While this debate is ongoing, the essence of this article centers on the importance of aligning your investment choices with your personal values. Whether these values are ethical, familial, religious, or philosophical, investing in businesses that resonate with your beliefs is crucial, particularly if these values hold significant importance to you.

Beyond financial returns

Investing transcends the mere act of expecting financial returns. It’s essentially entering into a partnership with the business you invest in, sharing in both its risks and rewards.

This involvement can be daunting but also exhilarating, as even the smallest investment plays a part in driving the broader economy forward.

Successful investing involves bridging the gap between mere market participation and thinking like an entrepreneur. This shift in perspective allows for forming more nuanced expectations and a deeper understanding of where your money is being utilised. It’s about seeing beyond the dollar signs to the real impact and growth potential of your investment.

For those unsure of where to begin, consider this simple yet effective exercise: Visualise the journey of your investment, from the moment you contribute your dollar to when it returns to you. Think about the impact it has along the way — on the business, its employees, the environment, and the economy.

If this journey aligns with your values and expectations, it’s a sign of a potentially sound investment. If not, it may be prudent to reconsider and look for opportunities better suited to your investment philosophy.

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About the author

Victor has more than 13 years of experience in wealth management. He has assisted many individuals, families, and institutions in their financial journey throughout his career, either by providing tailored advice on their investments or by managing assets on their behalf. He occupied a number of key positions within the investment divisions of CA Indosuez, Lombard Odier, and Citi Private Bank. He holds an Engineer’s degree in Bioinformatics and Modeling from the Institut National des Sciences Appliquées of Lyon, and he is a certified FRM. In his free time, Victor loves scientific readings and collecting rare books.

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