James Sanders on how and when to invest in a start up

James Sanders from London diamonds is an early-stage investor in start-ups across a number of sectors. His interests lie primarily within AI, technology, gold, art, property and, of course, diamonds.

As well as an active investor, James is an entrepreneur. He founded and is MD of London Diamonds, a disruptive innovator in the lucrative diamond engagement ring sector. All of this gives him a unique insight into start-ups within the luxury market in particular.

How a diamond engagement ring launched a start-up

Every successful start-up begins with a business idea – ideally one that fulfils a specific need. For James Sanders London based jewellery retailers weren’t cutting it. And that’s why he created the London Diamonds team.

James Sanders says: “When my wife and I looked for engagement rings to replace her original diamond ring, it became extremely clear that finding a fair price just wasn’t possible. The traditional jewellery industry has become complacent and sell engagement rings, whether they’re naturally mined diamonds or a beautiful cut, for a vastly inflated price tag.”

“I saw that there was a gap in the engagement ring market for a far more innovative approach to selling diamond rings. Customers respond to a brand selling bespoke jewellery, with the human touch and expert advice but at the same time buying diamonds for their real value – not a value that is inflated by sales staff, trends or false advertising.”

London Diamonds takes a different approach

When James Sanders decided to take a fresh look at how to launch a start-up in the jewellery industry, he concentrated on creating the best result for the customers.

London Diamonds sells online, using Instagram as the main ‘shop window’. This means that extraneous costs (for things like property costs and expensive marketing) aren’t passed on to the person making the purchase.

As London Diamonds Managing Director, James Sanders believes that there is a better way to sell luxury brands, and it’s not the store that matters. He says: “It’s no mean feat for London Diamonds that we already account for 1% of the total engagement ring market in the UK, and this is just the start.

“The company offers clients the kind of direct, accessible services they want to make significant life purchases. So many people are overcharged for diamonds and jewellery simply because of the brand selling them – London Diamonds changes all of this in so many ways. We’re responsible for quality bespoke jewellery, and we work harder to support our clients every step of the way to spend their money in the best way for them. Every sale is important to us, and this attitude and approach is vital for our success.”

James Sanders – entrepreneur and investor

While James continues to grow the London Diamonds brand as the company’s Managing Director, he looks out for investment opportunities within the sectors that interest him the most – including art, technology and innovation.

He says: “Leading the team as managing director doesn’t get in the way of investing in start-ups that interest me. I’m always interested in discussing start-up company ideas with individuals who are motivated, enthusiastic and future-thinking.”

“Finding real value is what interests me the most – we all know that asset values and their cost are artificially inflated by central banking. I’m looking for the business start-up that offers real life value – something tangible and heading for success.”

How much risk should an investor take on?

James believes that many investors around the world take on too much risk up front. He says: “I think investors often fail to adequately assess risk in their quest for income. To be a successful investor, you need to shift the focus from return on capital to return of capital.

“Right now, we’re living through a time of unprecedented challenge across all kinds of socio economic factors. And turbulent times bring brand new opportunities for business – as well as new risks.

But the fact remains that investing in early stage start-ups is possible for anyone who has done the research and has enough capital – the days of only very high net worth individuals being able to invest in business are over. There are various ways that you can join investors in the UK. ”

Equity crowdfunding is an investment opportunity available to anyone

Start-up business researchers Beauhurst found that equity crowdfunding has grown to become a mainstream source of business finance in the UK. They says that between 2011 and 2021, fundraisings increased from just eight to around 600.

James says: “Investors are drawn to equity crowdfunding thanks to possible high returns. If we look at the investors in BrewDog, for example, we see that they received a 2,765% return on their initial investment. But, along with the chance of making a very high return, there are higher loss risks with equity crowdfunding.”

According to the ONS, just about half of all start-ups fail within the first 36 months of operation. This is a clear risk for early stage investors, but start-ups also grow much faster than traditional businesses.

James Sanders – advice on how to invest in a start-up

While James’ entrepreneurial ventures have resulted in London Diamonds, which is a specific – albeit large – market, his advice on investing in start-ups is broad.

He recommends three paths for investors who are looking for the initial opportunity: “Crowdfunding, angel investing or investing in a VC fund are all viable options for newcomers to investing in start-ups. Investing in a fund, in particular, offers relatively light risk compared with investing directly into a start-up, regardless of the sector.”

Crowdfunding investment

Crowdfunding sites mean that lots of investors can put in some money towards a round of investment. They then get a small equity stake in return. James Sanders says: “Crowdfunding works for investors when the start-up floats, another round of fundraising is facilitated or is acquired by another business. Investors can cash out with any of these scenarios and make some money.”

Right now, crowdfunding is one of the most popular ways to fund start-ups in the UK – you will definitely heard of some of the success stories – the likes of Nutmeg and Monzo.

James Sanders says: “Equity crowdfunding is the easiest way to get involved in backing a start-up. This is where the investor puts in a fixed amount of money and receives shares in the company, if and when it reaches its target for funding.

Equity crowdfunding versus convertible crowdfunding

The other option is to purchase convertibles. These are used if the start-up wants to get direct access to the funding in the short-term. You as the investor would buy convertibles that are converted later on into shares. The biggest difference between these and equities is that you won’t know the value of future shares when you invest.

Occasionally you may find a crowdfunding platform that runs its own investment firm that covers a range of different start-ups. However, these aren’t the most common form of crowdfunding investment.”

Only ever invest in a start-up you truly believe in

This is the most crucial decision to make as an investor – is this the right start-up to get behind?

James Sanders says: “In my experience, investors do best when they fully understand the sector in which the start-up operates. Investing in an area you don’t fully understand can backfire.”

“Similarly, you’re only going to make a success of your investment if you truly believe in what the start-up is trying to achieve. The best thing to do is only commit your money to a start-up that has a mission you are fully behind or has a product that you believe in. Ideally, of course, you’re looking for both.

Find out more about James Sanders here.