Investors want quality

Over the weekend I sat down for a chat with an old friend who works at one of Australia’s bigger investment houses. He is one of the many analysts scouring the market, essentially looking for undiscovered gems that could turn out to be great investments.

It’s not an easy job at the moment. Most of the new companies coming through are junior resources companies that have exploration plans, big dreams and a hunger for capital – picking winners in that area is very, very difficult.

So I asked what he and his team are looking for to help them separate the wheat from the chaff.

“Ideally we want to find good company owners. Someone who is used to running the company to generate income for themselves and who has a management team that will continue to run the company like they are playing with their own money.”

Essentially, the entrepreneur has become just as important as the business – providing the business owner has a good track record, a significant stake in the business and good growth prospects.

It’s hardly surprising then that we have reports this morning that entrepreneurs Paul Lederer and Larry Kestelman are examining floats for the respective businesses, Primo Smallgoods and Melbourne-based ISP Dodo.

Both have been running their businesses for years, both have been seasoned by intense competition (food and ISPs must be two of the more competitive sectors around) and both have shown they can grow a business.

No wonder there is strong interest in Primo’s float, and no doubt there would be good interest in a float of Dodo.

I think it’s really interesting that this focus on entrepreneurial excellence is coming to the fore among institutional investors.

While many of Australia’s biggest companies – I am thinking our banks, mining companies, retailers, telecommunications companies and utilities – have little connection to an actual entrepreneurial figure, the skill of a business owner remains highly valued by investors.

As it should be.