Passion Is a Key Differentiator in Business Leadership. Here's Why.

It's easy to look up quantitative factors about a business, like revenue growth. What's harder is assessing qualitative factors like management and leadership.

In this Backstage Pass interview aired on Jan. 5, venture capitalist Khaled bin Alwaleed, the CEO and founder of KBW Ventures, discusses with Fool contributor Jeremy Bowman what he looks for in leadership and who his investing mentors are.

Jeremy Bowman: Maybe we switch gears a bit, being in your position, you're able to meet with a lot of the founders and leaders of the companies you invest in so I'm curious-what do you look for in a CEO or a founder? What qualities do you think set apart the best business leaders?

HRH Prince Khaled bin Alwaleed bin Talal Al Saud: I mean, that's a super, super good question. I mean, we really look for founders that really have a passion to what they are doing, to really see the vision of what they're trying to achieve, and make sure that that all aligns economically with the company going forward. I mean, if you can have a passion and it can be a hobby, you can have a passion and it can be a business. Obviously, we're in the business of investing in the sustainable businesses that are going to make money.

We really look for partners that really teach me something. I like to read a lot and like to know a little bit about a lot of things. I don't claim to know a lot about everything, but I do read a lot about different sectors and different businesses. For example, FinTech would be really interesting, as I said, for me, but I really don't have a really good understanding of for example, if a company wanted to solve an X issue that the market is having right now, how would they do that? I'd have to learn that specific area, and that's what I look for in a founder. He or she would have to really understand the solution that they're providing. Why is it a solution? Why is it a viable solution? Why do they think this is going to be a good business in the next five or 10 years? How can it be sustainable? Obviously, again, as I said, it has to make economic sense. If all those things align together, I'm more than happy to talk to anyone, really. I mean, we do have some filters obviously at KBW ventures because there's a lot of deal flow that comes through our way. But I mean, we've had other pitches. There're people are just passionate about a certain issue, that's not necessarily going to make money, we definitely passed on those. But the most important thing for me, does it make economic sense, is it sustainable, does it solve a solution, and how well do you know your market, and how are you going to capture their markets with the largest margins possible.

Jeremy Bowman: Right. Yeah. Those are good points, I think, like the mission-driven focus as well. Of course, you have to have the economic opportunity also as you said. I'm wondering too, we like to be students here at the Fool. Some of the great investors, Warren Buffett of course, among others, more recently Cathie Wood, paying attention to you a lot. Do you model or are there any investors out there in history that you look at a model that you've learned from?

HRH Prince Khaled bin Alwaleed bin Talal Al Saud: A good question. I've got the best teacher that I can ask for right down the street from here.

Jeremy Bowman: Yeah, I wanted to say-

HRH Prince Khaled bin Alwaleed bin Talal Al Saud: He's my father, I really look, I'm super blessed of having someone like him obviously I've grown up with learning about his philosophy, and investment philosophy, and doing so many of the successful investments that he's made. Obviously, he does a lot of what Warren Buffett does and Warren Buffett does a lot of what he does and everything. I think Warren Buffett, what do you call them? Warren Buffett of the Middle East or something. They have this incredible relationship that I'm lucky enough to actually be able to even be at these meetings and listened to both. I'm like taking everything in and really digesting how these investment philosophies go.

Now however, I am an investor in venture and that in itself is a different animal, if you will. You don't necessarily have the luxury of 10-year historical financial analysis to go through and everything. You do have a lot of sense when it comes to being burnt a lot obviously teaches you. You have a good sense of listening to the entrepreneur, listening to the founder and seeing what exactly they're pitching, and how well that's going to go, and how important that's going to be, and how important that he or she is going to play a role into the specific business. We look for criteria like, I mean, we definitely want to invest in companies that have revenue. Now, granted, I did give you about three examples of companies that don't have any revenue. But again, those are specific companies that I believe are going to be huge in the next 10,15, 20 years. But we definitely want to have revenue. We want to have the year-over-year growth. I mean, not most likely, but we look for 100 percent year-on-year growth for companies that we invest in really. We look for companies that usually have multiple term sheets and have the big guys fight over them.

Again, we got the backdoor through these companies, through the relationship that we have through PROOF fund. These are criteria that we really look for. Obviously, there are few companies that I do invest in the public sector. You'd get the traditional requirements like, how well were they doing in the past? What are their margins like? What are their financials like? Do they have stable employees that stay there? Who's their CEO? What's his track record or her track record and stuff like that. We definitely have a lot of criteria that we go for. But again, I'm more interested in venture. Venture is very niche market that doesn't necessarily have the luxury of historical data that we can go by.

Jeremy Bowman: Right. You make a good point. [laughs] Yeah, venture is definitely a different animal than investing in the public companies, as you said, with a track record and stuff. I want to mention for our listeners that your father was an early investor in some of the big tech companies, Apple, Twitter, Snap, and Lyft I believe, among others. [laughs] Definitely, yeah.

HRH Prince Khaled bin Alwaleed bin Talal Al Saud: I actually remember the investment he made in an Apple. He Made the investment in Apple when the late Steve Jobs, may he rest in peace, came back to Apple. The year that he came back in Apple. Obviously, that was an investment in Steve Jobs rather than an investment in Apple. Obviously, Tim Cook has done such an amazing job right now. That's one of the investments that are really near and dear to my heart because I'm an Apple fanboy also. [laughs]

Jeremy Bowman: Yeah. Incredible story over the last 20 years. You could think about it as a turnaround somewhere.