Ep501: Paul Smith – Figure Out Your Secret Sauce First

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Quick take

BIO: Paul Smith is an independent corporate director and private investor with significant experience in the Financial Services and Investment Funds industries. He served as President and global CEO of CFA Institute from 2015 to 2019.

STORY: Paul and his friends put in money to start a hedge fund seeding business in Hong Kong. The financial crisis hit just when they had received about 40% funding and had to pay back the investors who chose to get out. The partners had to close down the business and lost quite a substantial investment.

LEARNING: Have a unique business model that investors will want to back. Don’t have a highly concentrated shareholder base. Get your business to at least $3 million as fast as possible to survive.

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“Don’t allow the excitement of a startup to cloud your judgment.”

Paul Smith

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Guest profile

Paul Smith is an independent corporate director and private investor with significant experience in the Financial Services and Investment Funds industries. He served as President and global CEO of CFA Institute from 2015 to 2019.

He currently serves as a member of the Oversight, Policy, and Governance Committee of the Financial Reporting Council of Hong Kong. He is a Hong Kong Securities and Futures Commission’s Products Advisory Committee member. He is a founder of the Sustain Finance initiative and a trustee of the China Insight Foundation.

Worst investment ever

Paul made a substantial amount of money from the sale of a business he owned, and he decided to quit his job and go out on his own. He set up a hedge fund seeding business in Hong Kong that he and a couple of other individuals funded with their money. Paul invested seven figures into the business.

The plan was to set up the infrastructure behind a regulated asset management company, then go out and raise private equity-type investments to fund an investment vehicle. The investment vehicle would then, in turn, go out and seed investment managers. The partners raised money from a couple of institutions and some family and friends.

The fund got regulated, and they began to seed managers, mainly in Asia but scattered worldwide. The company was about 40% invested when the 2008 financial crisis hit. Their institutional partners pulled the rug from underneath them. They paid the institutional partners back and unwound the business. As partners, they took quite a hit when the company ended.

Lessons learned

• When looking for investors, make sure you have a unique business model worth backing.
• Your shareholder base shouldn’t be too concentrated.
• Raise enough money for your business for it to survive.
• Resilience is vital when running a business.

Andrew’s takeaways

• If you can’t find any uniqueness in what you’re doing, then be good in execution, or work with someone unique.
• You’ve got to get your business to between $3 to $5 million in revenue as fast as possible because that is how you’ll afford everything that makes you a professional company that can survive.
• Sometimes the success of your business depends on your timing into the market.

Actionable advice

Don’t allow the excitement of a startup to blind you from implementing the lessons you’ve learned. Check your excitement and keep learning.

No. 1 goal for the next 12 months

Paul’s goal for the next 12 months is to try and get Sustain Finance more firmly established and get some corporate sponsors to help with that. He also wants to hire more researchers and significantly impact China’s asset management community.

Parting words

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“Remain curious. Keep asking yourself why other people are different from you in a non-judgmental fashion.”

Paul Smith