Let's Share: Investment Research Approach - I tell you My story, Will you tell Yours?

Throughout the last decade, I am more intensely investing in companies and projects. When starting back in the early '10, I realised I do love researching. Much more than trying trading assets or stocks. Which makes me an investor instead of a trader. At least, that is my kinda conclusion. But that aside. Don't get me wrong, I am just a small-time investor, with relatively small investments/participations per project or company.

I have my way of researching and will explain this using my most recent example. Maybe it gives you some inspiration in your process towards the decisions you make: Invest or Not.

At the same time, I like to learn from you how you go about your research. What are the topics you concentrate on? What is your process? What makes your clock tick?

How to Elaborate...

Short form, Long form...Doesn't matter to me 😉 Just drop your link to your article in the comment section below. Don't forget about the past. You may already have written about your research process before. Comments. Posts. Use Hivesearcher. Find them. Drop the links below. It's to remind me since I tend to be lazy ... Well: "I tend to forget", is perhaps a better explanation. Not only my grey cells are grey. My hair isn't less grey these days. Hence memory loss is imminent or even a reality 😆

A little less than a week ago, I received this email from one of the platforms I use for investment opportunities in the fiat space. A Dutch company is seeking funding from the crowd. Convertible loan. An investment type I like since this gives me the possibility to get shares by converting. While the loan in the initial period gives me a bit more security to share immediately. Also when converting, I'll be getting discounts on the share value.

Sleeping Companion: The Research

The product: a kinda soft device to help peeps with difficulties in falling asleep, by trying to support our breathing. Essentially, a robot. A sleeping companion, as I call it. The product has a kinda egg shape. It could also be a somewhat deformed penguin. But the product itself isn't that relevant. It's about the process of making the invest-or-not decision. I'll try not to digress anymore 😉

Though at first, I wanted to be transparent regarding the company name and product, I decided to hide them since the crowdfunding is still running and I don't want to interfere. Google may pick up this article when I mention the names. When you are interested, just drop a comment and I'll provide the names.

When I saw the soft textile-covered egg, the amount of money this company is seeking, the statement a few healthcare insurance companies are vouching for this product and selling it with a steep discount, I got this positive feeling in my body! Should be a super product! And because of that, could also be a super company to own shares in.

I must admit, before I started my research I didn't know anything about sleep companions, as well as I didn't realise that at least 1 out of 5 peeps in my country (The Netherlands) have difficulties with falling asleep. Very interesting! A huge market potentially! Adding to the fact the number of single households (young and old) is increasing year after year, the opportunity for a sleeping buddy becomes even larger. Though this product is also meant for those who need it while having a human sleeping companion as well 😆

More fuzzy positive feelings: "This is my next investment", is what I thought.

And then I started my research, mostly using PreSearch and a bit of Google. The following approach I took:

• Read carefully everything pitched around this product/company at the crowdfunding platform
• Read the pitch on the companies website: Still positive
• Read why this product doesn't have competition, well it has, but isn't comparable: WOW, SUPERRRR ... Feeling top-notch positive and super fuzzy!

Then I told myself, before even thinking of going by just this information, which is perhaps super subjective, I shall go and figure out what is true, what are claims, what can be substantiated, what are the risks and such.

One statement was: "We pitched to Dragons Den and got x Million Euro funding."

...even more fuzzy feeling. When dragons decide to invest, it must be a good investment! Plus, these dragons usually also provide their experience and guidance to the company, which makes an investment less risky in my opinion. Well, they said they pitched to Dragon's Den and the dragons said yes to funding. PreSearch gave me a bunch of links with most of them stating the dragon's funded, 2 of them, while also mentioning x Million Euro between them.

Fuzziness All Over!

Now it's time to download the financials and other supporting documents!

Company structure showed a few Ltds including one with the same amount as the dragons invested. However with some Ltd name that wasn't remotely connected to the dragons. That information drove me back to PreSearch for more thorough research regarding this investment. Turns out most of the promised investments in these Dragon's Den shows, are not honoured in the end. This included the investment in this company. So no dragons on board! 🥲

"Uhm... Now I need to research more", I thought: "When the dragons liked the pitch so much to offer x Million investment, why the hell did they not grant the deal after the TV show?"

No real info I could find for the dragon's reasons not to invest though.

"What is true about the no competition part?", was my next question. And what about the health insurance companies? What about the reviews? And what about the peak in revenue the year they received the x Million investment? What about the drop in revenues the two years after? What about the reduction in headcount? And what about the relatively small crowdfunding round compared to the investments done a few years ago?

Many questions did arise after this single observation about the dragons. Something that put me into ALERT mode big time! Fuzzy feelings raced out of the room! 🏃

I do know the drill. Or I think I know. When investing, check product/service and team, and financials. The combination must be good, objectively. Feelings have no play in this. But that's how I tick. Feelings left and right. Fortunately, I always have this little voice telling me just before I decide to invest, to execute proper research instead of sticking to some superficial checks.

In short the most important topics I researched...

Reviews

One of the first reviews I read was about an individual having issues with sleeping. Super positive review. Ending with the statement the product is super!

But somehow it felt a bit odd. While the title suggested a real test, it was only a single person and turned out to be the mother of the article's author. A mention was made for a follow on research article a few weeks down the line. An article that never was published. "Ok, I shall dismiss this one completely", was my reaction.

Other reviews are also kinda positive, but a bit less. Some stated the product works well, but the price-quality ratio is not so good. the most serious articles, all concluded the product is expensive, perhaps too expensive.

Health Insurance companies

They mentioned three Dutch (nationwide) Healthcare insurance companies list the 'egg' in their webshops. Super! Offering a discount of 15%. NICE!

Turns out the company started to give discounts at the start of this year, also in their webshop. Essentially the Healthcare insurance companies aren't having a benefit. Sure, they can damage their brand, hence they must think this product is for real. But I doubt if the insurance company references are supporting the sales of this product.

Proposition

Further examining the company's website, the documents part of the crowdfunding opportunity as well as two interviews with a co-founder and spokesperson of the company, resulted in: "Ah ok, they are adding this subscription model. Pay a few 10s of Euro a month, instead of paying a lump sum of around 600 Euro".

The claim is made for the crowd funders to fund the CAPEX investment to support this 'Sleeping Companion'-as-a-Service model. Uhm. Not super positive about this. No cash is available in the company to fund itself. What when more cash is needed?

Pricing

The egg is perhaps too expensive. Only 10k units were sold in the last years. Isn't that much. They already tried to open the US market, but they failed. Now this subscription model, however, no real experience build up so far. Somewhere in the docs the statement: The price level for the subscription is the same as the least expensive sleep add smartphone app. However, that statement turned out to be false. Did cost me another hour or so to figure this out. That included downloading a few apps mentioned by the founders in some articles and discovering myself.

Competition

What about this teddy bear robot? A competitor pushed this to the market relatively recently. The cost price for the consumer is kinda like 70 Euro. WOW! Really? Kinda like 10% of what the 'egg' costs. About the cost for 2 month's subscription. Seriously?

Sure the team mentioned this competitor, though not in so many words. The technique embedded by the bear competitor is different to the egg one. The claim: Their egg-shaped robot technology is superior to anything else.

As well as it is patented. But they are a bit vague about which markets. Mentioned are three regions, Europe and North America. Couldn't conclude if this means the US and Canada, or one of the two. When latter, am missing a region though. That said, US and Canada aren't two regions in my vocabulary.

Anyways, by now I remembered a blog from someone who told the story of a large test executed amongst the peeps living in an elderly home. She, a nurse, said something along the lines of: "Many tested with the egg as well as with the teddy bear. This is still an early result. We continue our tests and plan to update this report later on. General feedback after the initial tests show both products kinda feel the same with the same results. No real differences. The good news: The testers felt the products did work." However, we don't know if this is due to the bear and/or the egg. Perhaps the placebo effect is at play? No subsequent article yet, so I had to do with this single blog post.

Sleeping Companion: Concluding

By now I did spend a good part of the day researching. Read plenty of articles, from objective to subjective ones. From honest to more or less dishonest ones.

It is my own 'feeling' and 'logic' that led to the above classifications. I have no proof. Hence these are my own perhaps biased statements and don't serve as any objective classifications of such 😆 These days we have to be super careful living in this 'cancelling culture' as well as the common attitude 'I bring you to court' ... covering my ass with disclaimers left and right 😆

From all the material I read and digested, I went from "Super cool product and nice investment!" to "I'll skip this one!". A full 180! Took me 6 or so hours out of my life to go through this gigantic U-turn.

Initially, I even wanted to go for the 3.500 Euro investment as a minimum to get a free egg myself. By now I think any investment into this 'scaleup' (as they call it themselves) is way too risky! The company didn't show the OPEX (subscription) model works for their product. They showed their CAPEX model kinda worked but with very limited units sold and decreasing numbers last two years. They showed their US adventure didn't work, claiming they underestimated entrance into the US market. Another startup/scaleup not knowing what is required to enter the US market. To me, not directly a red flag, but still, a warning at least.

Have seen more Dutch startups going from the Dutch market straight into the US market. Numbers tell us the US is super interesting for consumer products. But I know, when wanting to be successful in the US, one needs 1) to have a local presence, 2) work with local peeps, ie US citizens or at least those peeps understand the US market, 3) spend tons of money to market the product. Have seen more than a few handfuls of Dutch scaleups going wrong with their foreign expansion into the US. Some went belly up because they tried, while others could retrace and overcome all the lost expenses, barely for most.

My Research Learnings and Notes

In a more or less storytelling style, I introduced you to the way I research investment opportunities. For additional key elements part of my way of researching, read further...

Unstructured but Structured

Somehow I know what is important to look at, I usually find myself going all over the place, as you may have noticed by now 😆 I always say to my friends and colleagues: "Am pretty good at defining structure to almost anything but am bad at executing my tasks in a structured style." I never was able to understand why I am going from left to right, from top to bottom and anything in between, jumping from one topic to another and back again. But I suppose that is how I am. Much experience from the past, shows it works for me. That's why I couldn't start my post with a process structure. Something I wanted to! But quickly I realised, I don't apply a structure 😆

Gut Feeling combined with Logic

One of the rules in investing is to turn your emotions off. Well, I don't agree. At least not for me. I learned that I need my gut feeling to decide. Not that I solely listen to my gut feeling, but it's darn important. I can't explain it. When I try, I think my gut feeling is the result of the unconscious trying to tell me the overall result of all its logical thought processes. If my unconscious applies logic in its thought processes, I don't know. I like to believe it applies logic.

Something I am pretty good at is coming up with logical reasons to explain my gut feeling and convince others. This can be very dangerous though since I could also make compelling arguments for the opposite side 😆

Team

Honestly, the team, their qualities in decision-making, problem-solving, and execution overall as well as their characters may be the most important to get to know. However, for most investments, this is not an option, other than some material we can find on the Internet. Rarely we can meet the team. And even when we meet them, it usually is just for an hour or so.

I can tell you from my own experience, the team makes or breaks a company.

Have invested quite a few times in the fiat space, crypto space, shares, tokens and whatnot. Of all those investments, in three cases I know the team. In one company I know all the co-founders personally. Another case: I have seen the co-founders working on other projects in other companies for about 5 years. The third case: I intensively buddied up with someone I met online to play the DeFi space for over two years. He earned my trust and respect and when he became part of a team launching a new project in the crypto space, I was on board.

None of these three investments played out to the end yet, but all three are showing great intermediate results. From about 10 years ago for the first one, to about half a year ago for the latest one. All other companies and projects I invested in, I had to do without knowing the team. Can't say if they are doing better or worse, but I for sure went in with mucho fewer funds per company or project than the three for which I (kinda) know the team/co-founders.

Diversify

That's a rule I always apply. Even when going into an investment on gut feeling whilst not doing the appropriate research, I never fall into the trap of not diversifying my investments. Sure I take some additional risks, but I always make sure the investment 1) I can lose completely 2) Is not heavy in a single segment of the market.

Combination of a Whole Lot

From all the research I've done; All the investment decisions I made; I can't say I just go into the few important key elements (team, product/service, financials) rather I combine everything I read and discovered. This, of course, includes competition, the market itself, statements made by the company/project, articles, blog posts (positive as well as negative ones) and more. I always question everything when digging in! And when reading up, and digesting for many hours, much of all I learned (and know) goes into making the decision.

Though this case was about 6 hours and a same-day decision, I usually take 2 days, plus a few nights to sleep on all of it before making a decision. Now, a few days after my decision while writing this post, I started to think about this egg opportunity again. Still the same result: No investment in this company. It still 'feels' like a good decision. I suppose I don't need a few nights of sleep 😉 A very none scientific conclusion therefore a truly unsubstantiated remark 😂

What about Your Research and Learnings?

Am excited to learn about your research process. What your learnings are. What do you find important to know before making decisions? Whether your feelings, unconscious, play a role in decision-making? I like to know how you get triggered to start with. What makes you decide to start a research process? How much time do you spend researching?

As mentioned before, use the comment section below or create a new post and drop a link into the comment section. Will be much appreciated by yours truly 😉

NJOY the Research 😉

a HIVE original
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