The Art and Science of Spotting Investment Opportunities

By Miguel Sánchez Navarro Madero: CEO of Fortem Capital

As a successful entrepreneur, I’m often asked about how I identify potential investment opportunities. The truth is that much of how I assess investments comes down to business experience and having instinct about people and the opportunities they’re offering.

I’m incredibly proud of the many projects that I’ve been involved in over the years, from the magnificent Vía Vallejo Park shopping centre in Mexico City to the many car dealerships I’ve helped to create for some of the world’s leading manufacturers. Working with many different kinds of people on challenging and complex pieces of work has brought me a lot of satisfaction during my career. It is the variety of work I have the chance to be involved in every day that really keeps driving me on to new things. But if there’s no magic formula to choosing the next challenge, what is it that links all of these opportunities that

I’ve invested in over the years? What was it about them that attracted me and gave me the confidence to get behind them?

The financials always come first Well, it all comes to both the art and science of analysing the investment. Here’s how I think that works. For me, there is of course the ‘science’ of looking at the numbers that lie behind any new project. This is essentially the due diligence that you need to follow
in the early stages of any investment in order to make sure that the opportunity is actually as good as it appears to be.

It’s about looking closely at all of the available data, analysing it and assessing how far and how accurately you can project future performance from the numbers you have. The projects I’ve been involved in over the years have been complex, but I always make sure that I enter into any new business relationship having a deep understanding of all of the relevant financial information to hand.

I’ll look at the performance and the projections for the sector that the business is (or will be) operating in, the suitability of the target customer demographic and the financing that the project has attracted from other sources so far. However attractive the pitch I hear for the investment is, I’ll always do my own thorough background research. Clearly, the numbers have to be right before I go any further with my investment.

Experience matters

But, assuming they are, there is still a large part of the decision making process that comes down to something less tangible, beyond the
pure financials. And this is where the ‘art’ of spotting an opportunity comes in. What do I mean by this?

Well, for me it’s all about using your experience to gauge how the potential business relationship might pan out. How have similar projects gone in the past? Where have mistakes been made, and do the people who want me to invest with them fully appreciate the risks and challenges that a project like this involves? I firmly believe that in business being able to get the measure of people and quickly assess their individual strengths and weaknesses is absolutely invaluable.
Being able to do this effectively in the early stages of a relationship can be the difference between going into partnership with someone who will grow your investment, or someone who could lose it very quickly.

Follow your instincts

I’m a firm believer in trusting your instincts. I’ve come to trust mine completely, because I think they draw on the most valuable asset I have as a business person: my experience. For example, I often rely on it to tell me how much investment is required, and at what stage of a project’s development it would be most valuable. Businesses that get enough investment early on are around 25 per cent more likely to last longer than four years, according to research from Harvard Business School. But much of being able to assess how much ‘enough’ is comes down, I believe, to the real life experience of having been regularly
involved in these kind of deals, year in, year out.

But of course, business instincts also operate at a far deeper, more emotional level. I’ve found over the years that sometimes, even when the numbers add up and the projections for the proposed business look good, there is something that just doesn’t feel right. It might be a feeling I get from the people who are looking to work with me, or just a sense that there will be issues further down the line that aren’t quite apparent yet. My instincts have generally proven to be correct over the years.
My final piece of advice in terms of spotting investment opportunities is to develop patience. Again, this is something that I’ve only learned through a lot of experience, but it can pay off to wait, even when an opportunity looks like a good one. I’ve learned that there’s always time to do your background checks and your research, and also that it’s much harder to pull out of an investment once you’re committed yourself financially.

Join the discussion