The wealth management sector is, or should be, familiar with the venture capital model, and one VC-style idea is that of backing potential motor racing greats of the future.

The wealth management world is familiar with the venture capital model of investors backing a clutch of start-ups in the hope that some, if only a minority, turn out to be the next Google, Facebook or Amazon. The model has been tried in areas as diverse as bloodstock, for example. And the glamorous world of Formula One motor racing – of which this author is an unashamed fan – is getting the VC treatment.

One potential star - with several achievements already on the clock - is Dan Wells, of Dan Wells & Investors Limited, and a Formula Renault UK Finals Series vice-champion. Wells’ career is supported by Asian team KCMG, for whom he is its official brand ambassador.

Wells, along with others, recently presented the idea at the Asia Bankers Club in Hong Kong, realising that wealthy individuals in the region might be interested. Among the speakers at that event in Hong Kong was Ian Phillips - chairman of Wells’ company - who has been in F1 for 26 years and was instrumental in the creation of the Jordan F1 team with Eddie Jordan. It was only in 2010 that he parted with the latest identity of that team, Force India F1. Phillips has also played a central role in facilitating the arrival of nearly 50 drivers to F1 including star names such as Michael Schumacher and Eddie Irvine This publication recently asked about how the investment process works, and spoke to Dan Wells and Kingston Lai (chief financial officer of the company).

According to the investor pitch, Dan Wells & Investors Limited (a Hong Kong-incorporated company), has a target to raise $4.375 million of shareholder capital to invest in Wells’ career. In return, shareholders are allocated common equity of up to 35 per cent. Wells has exclusively contracted himself to Dan Wells Investors Ltd; the company is entitled to share all future income, be it personal sponsorship, team salary and prize money. Shares in the revenue stream last until 2028.

Is this F1 driver investment concept being targeted specifically at the clients of private banks, family offices, and other clients of wealth advisory businesses in Asia?

Kingston Lai: We view this as a new asset class which we hope to introduce to the financial institutions in Hong Kong (which indeed includes private banks, family offices and wealth management companies).  

How does the investment in a driver work? Can you take me through the different stages, leading to the outcome in terms of investment returns?

Kingston Lai: This is basically a private equity transaction where a few partners come together to form a private limited company. The private limited company will have an exclusive contract with Dan Wells and the company benefits from the revenue that Dan brings in over his career life (15 years) as a professional driver. The investment returns are calculated based on different assumptions and scenarios. The sensitive commercial information contained prevents publication of those scenarios but are made available to interested parties on a face to face basis. 

Where does the income and capital growth come from (advertising, sponsorships, etc)?

Kingston Lai: The main revenue streams are team salary; sponsorship (ie, advertising), and partnerships.

What are the main risks and what sort of steps can be taken to diversify these?

Kingston Lai: The main risk is the well being of the driver as he is the main asset of the company.  The company will be purchasing term insurance to hedge such risks.

Motor racing is, despite vast improvements in safety since the death of Senna in the 1990s, a dangerous sport. How does this have to be accounted for by those who invest in it? For example, the cost of safety measures, medical support, is heavy. Can you comment on this aspect of racing?

As described above, the way to protect this risk is through insurance.

What parallels are there with investing in bloodstock?

Kingston Lai: There seems little point comparing the two asset classes save both investments are determined by performance as it with almost every investment opportunity. The difference in length of career and the diversity of opportunity available to a marketable driver makes comparison tenuous. The only parallel that no doubt exists is the reward, pleasure and engagement an investor receives when investing in a living breathing asset that provides pleasurable social and business networking opportunities, and potentially healthy returns.

Dan, tell us a bit about yourself.

Dan Wells: I suppose I should introduce myself properly to effectively describe how my vision has come about. In 2009, having achieved Top-10 status in the UK for politics and economics, I was going to study economics at university - that is before I decided to become a racing driver! I took a fastest lap in my first ever kart race, five class wins in Formula Ford in 2010, 2nd in the Formula Renault UK Finals series in 2011, before I came across budget difficulties what with the economy not being in fantastic shape and it being hard to find sponsors.

I looked for an innovative way to continue my driving career, and looked eastwards. I managed to raise HK$140,000 via Twitter, where over 150 people sponsored me, and this got my racing career in Asia underway. I moved to Hong Kong in April of 2012 and I raced in a series which cost over HK$1 million using my business and networking skills to raise the finance, and managed to take three victories on route to 2nd in the championship against financially well backed competition.

I've long held a vision whereby I can invite investors to come on board and join me in my quest to the top of world motorsport, and this vision is becoming a reality, thanks to many peoples hard work, including the Asia Bankers Club.

There are of course many risks involved in motorsport, and we have sought to minimise these, through insurance terms, ensuring business plans are in place and also by making sure that the right team is in place to make this project successful. For example, Ian Phillips, who is highly regarded in the motorsport industry. Ian is the chairman of the company and is a key member of my management team and there is no better validation of myself then having him on board. 

At the end of the day, although the investment is in the company, it is really an investment in me - I am the product. People who know me and have worked with me know I am someone who makes, and allows things to happen, and for those investors who see this and take the risk, will be sure to be rewarded in the long term along with my partners.