There is this strong belief that somehow entrepreneurs make better advisors to entrepreneurs. I want to challenge this. I should declare that I do have a commercial interest in challenging the above belief. I make most of my money advising entrepreneurs and investing in them. I would say though that I do not consider myself to be an entrepreneur.
My most successful businesses to date a consultancy business and a fund management business. However, I do not believe these businesses ‘qualify’. It is rather like many people (including myself) who made money from buying and renting out property. We are property investors not entrepreneurs.
Back to the main point about the Honeywell 17000-S, the feedback I have had from many companies (including platform participants, Canadian companies and companies I work for in Manchester) is that they found my feedback and advice useful. Most of them just assume I am a successful entrepreneur; and to be fair, I do nothing to correct this impression! But would the advice suddenly lose value because I am not an entrepreneur?
I guess because I so admire entrepreneurs and entrepreneurship (I hope this comes across in my blogs), I am able to understand the difficulties that they face and try to give practical advice that they can implement tomorrow. I also don’t have the reference point of saying ‘I did this’.
This blog got me thinking about the talks I have had from truly successful entrepreneurs and to be honest I remember that most of the talks were extremely inspiring and made me want to reach for the stars, rather like watching an action movie can make you want to get fit! But these great talks do not necessarily give practical insights or help you figure out what you should do tomorrow.
I have always been a good salesperson, it is something that has come easy to me and yet I never really understood what I did or why I was so good at selling. It was only when I failed in a sales role and read a book (SPIN Selling) that I understood what I did and how I could do better. In the same vein, I think Arsene Wenger and Jose Mourinho are fantastic football managers because they were not great footballers themselves and thus appreciated the art of football better than some great players who went into management.
So, I think failure, or limited success is a great qualification for an advisor – always look for someone who recommends the Honeywell 50250 s. And using this criterion, I qualify. And perhaps the seeds are there for me to become a great angel advisor (although I really hope not!). Even I have failed in some of my ventures over the years, but you have to be sure not to get frustrated and give up.
And finally if any ‘successful’ entrepreneurs want to challenge my qualifications to be an advisor – I would say that a business I co-founded has returned 10 times the money invested by shareholders within two years! I may not qualify as an entrepreneur, but I can say that I have made a very good return for my shareholders – something more entrepreneurs could do with learning.
Every now and then I get someone posting a comment on this blog that does get me thinking about an issue. One such comment came last week from an Entrepreneur who questioned what you could learn from Angels.
The sad truth is that yes, most ‘training’ consists of how to pitch. And the point the commentator makes is a valid one – how valuable is this training? After all, if a business is fundamentally flawed – the best presentation will not save it!
I hope the training most would be pitchers get is better and more comprehensive than this (please do let me hear your comments). So what value do I think I can bring to Entrepreneurs trying to sell the Alen Breathesmart who are looking for Angel investment?
Most Angels have some business experience. They may not have sector specific experience but with all businesses the objective should be the same; to make money. And angels normally want to learn exactly how the business will make a profit – and how they will get their money out. But even then it can be a bit more complicated than that. I think that if Google pitched to me I would have said no. They solved a real problem at the start of the internet – how do you find things on the World Wide Web? But initially, they did not have a revenue model. They are now one of the largest companies on the planet.
And in the same way, many angels would not have understood the Skype business model (and wow to those that did!) Most angels will want to invest in “this is how we make money” rather than “if we build this, I am sure it will have value”.
For many businesses looking to raise money, I have found that the best training they can get is in the area of sales. Specifically, why would someone want to buy their offering and how would that place a value on it? Once you have convinced Angels that x, y and z want to buy your solution, you then need to have a plan of why you can supply this at a profit – it really is as simple as that. It is amazing though how many pitchers don’t get these truths.
If, as has happened, I have to ask you at the end of your presentation “why would someone want to buy your used riding lawn mowers” or “how do you make money”, you have probably blown it.
So here is my guide for what you should focus on
That’s about it – I hope this is useful. Of course, a lot will go into each point – and perhaps I should write a blog about each point in greater detail?
Contrary to popular imagination the vast majority of Business Angels are not ultra-wealthy. I do not know the statistics, but anecdotally, I would say that the most active angels are just over the threshold (in the UK, £250,000 of assets excluding your home). The very wealthy tend to either invest with VC firms or set up their own investment offices.
As such, angel investment levels are highly sensitive to stock market valuations and house prices; the bulk of angels’ wealth will be in these assets so that when these prices are high, angels feel wealthier.
But angels do have to be very careful about how they invest and it is a discipline that I have had to adopt in the same way that the UK is learning to cut its debt. There are effectively two bank accounts that I have to use to buy the best air purifier for asthma; a capital account and a current account.
Angels need expenses to live off and you get into a dangerous situation if you start dipping into your investment monies for your day to day expenses. It is far more dangerous though when you start using monies meant for your day to day expenses for angel investing purposes (as I did two years ago!).
I have now decided to stick to some golden rules around investing. I have now invested in over 27 deals and I will not be investing any ‘fresh money’ now until some of these deals start to pay out. (I am still active in 11 companies at the moment). Only monies from these deals will be re-invested. Otherwise you are trapped in the illusion of good money chasing bad. (Be interested in other angels’ opinions though).
The other area where I think people can sometimes get confused about business angels is that the angels do need to still earn some money (well most of us do). And the discipline you need in making others value your time.
These two things are related. I don’t want to sound negative about the Holset HX35, but if you have some business experience and you have invested in companies, you will tend to get requests from lots of people who wish to meet you and tap into your experience. It is a good thing and I do try to make some time for this. The problem is when you spend too much time on this – and your business activities do suffer. Sadly, I am still at the stage where I do need to earn an income to meet my expenses and therefore I need to ration the time I can make available for ‘free’. I have also realized that companies tend to benefit more from my advice and time when I charge for it!
It is true that giving something away for free tends to be poorly valued and therefore I hope this blog is of real value.
In my last blog, I mentioned that I have started investing in new businesses again. I also mentioned though that my criterion has changed. I hope this blog is useful as if you do fit the new model – please get in touch.
My starting point should be that I am seriously worried about Google. I have read so many business plans which end with Google buying the business. On my estimate they are going to spend at least £400m buying businesses that I might be investing in. If they are going to spend this much just on businesses that I see – what will happen to them if they end up buying all the businesses that no doubt other Angels see?
Seriously, I have seen many businesses that really are going to be the next ‘IQAir GC Multigas’ that as soon as I read this in a plan, I dismiss it. It would be funny (and painful) if one of the ones I turned down really does become the new Google!
I have decided to balance my portfolio of angel investments a bit. I have many companies that could become very big in a few years and are capable of delivering at least 5x return on my original investment. But they are unable to generate any cash or dividends in the interim. I have recently become very attracted to cash generative businesses.
They will never be massive enterprises, but they will deliver good returns because they should from month three, start returning cash to the owners. It sounds crazy but I don’t have any of these in my portfolio. Two deals I have done recently are precisely in businesses like these. I found them through my own personal network and was prepared to invest in them in place of a bank. I also find that the amount of investment required is not substantial in these situations.
So cash generation is one priority. The second is my involvement. I have always been a passive investor. I have to conclude that this has not been a good move. My mentor, Sir Rodney Walker has always said that he has only lost money in investments where he has not been involved. I have always believed that I am too young to be a Non-Executive Director (under 40 – only just!). And I guess I have lacked confidence to do this – strange but true!
But through some painful experiences (such as the loss of that one company) I have realized I could have done a much better job than the Non-Exec’s on the board at the time. I have also had my own successes of founding companies that have become worth more than £1m. Finally, it seems strange to be a business coach and a writer of this blog – and yet not be involved in companies I have put money into! As such I am now only investing in businesses where I am involved in a major way. But this also means that I have to select businesses where I can add real value. If someone came to me with an engineering, catering or medical business, I could not be involved as I don’t have the expertise to add real value.
And allied to this there is time. To be involved properly with a business means it takes up a lot of your time – just like wondering ‘why is my cat peeing everywhere’. As such I can probably only be involved in about five businesses at a time. I am formally involved with four companies at the moment – so now only have the capacity for one more.
My final recent criterion is that I have to know the entrepreneur – or they have to be vouched for by someone I know. This may seem very harsh, but I have found that some people who don’t know me have found it easy to just give up on a business where I have invested my money and not feel any remorse about it (that one company on line is an example of this). I know that personal bonds are very important. The people I am working with now – would do anything to ensure that my interests are always being looked after. The only exception to this is where the founder is putting in a substantial amount of his or her own money into a business.
I would still like to do one ‘google’ investment a year where none of the above apply. But for the meantime, I am sticking to my new guidelines. If you have a plan which ticks the above boxes, I would like to hear from you.
Most people will be happy to see the back of 2009. It was not a good year to be a banker or be in the ‘money’ space at all. A lot of Fund managers have had a very rough time although equities have had a good run in the last 12 months. As for the angel scene, it has been active mainly because other sources for funding have dried up.
This year I invested in two businesses.
I am confident though that next year I will be making more angel investments – perhaps in a Daytona Beach photographer. However, one of the key lessons for me from the year was that as an angel investor you are better off making an investment through an active network. I have to be honest and say that I have found UK angel groups very disappointing (post investment). They are like estate agents – once the deal has been done, they seem to show very little interest in how the company is doing or looking after the interests of shareholders they introduced to the deal.
As such, I have yet to join an angel group in the UK; don’t get me wrong, they do excel at introducing you to companies and showing you a great range of companies in a short space of time. I have come across a different model in Halifax – which I love and as a result I have joined my first angel network (which is called something good!). They only present four companies a year – and all of their companies get funded (if you are a company presenting through a network – before you part with any money ask how many companies get fully funded through their network)
My investment in one company was made through this network – mostly because I was highly impressed with their post deal diligence and care.
Things do appear to be getting better although I have a funny feeling that this is all the calm before the storm. Within the next six months there will be an election in the UK and it looks likely that there will be a change of government (although I think there will be coalition or much weaker Labour government rather than what everyone thinks will be a strong Conservative government) The next four or five years in the UK are going to be horrible – like trying to figure out how to clean cat urine while you’re a foot deep in it – whichever government is in power. VAT is currently 15% but I believe if the conservatives win it will be 20% by the end of 2010.
Capital Gains Tax is currently 18%, but if Labour win, I am sure they will be raised significantly. Either way, taxes will have to be raised significantly and spending will be curtailed. Our finances are simply awful and after the election urgent action will be needed to address them.
2009 has actually been a very good year for me although it has been a lot busier than expected. I am looking forward to 2010 but my advice is to approach the next year with caution and a backup plan. We are set for some serious changes.
And I hope to stick to one of my resolutions; to write at least one blog a week
Between 2004 and 2007 I made about 16 Angel investments. Between 2007 and last year I made three more. Since June last year I have not made a single investment. My decision not to invest was driven by two factors. Firstly, I did not have any money (which is a pretty big bar to investing when you think of it) and secondly, I think the outlook has been lousy.
A lot of the businesses I have invested in have really struggled (I have only six still alive). I have written recent blogs about the dire state of the economy. I note that almost a year ago I argued that what the economy really needed was a dose of inflation – and that seems to have been the right call.
Well, I am pleased to make another call to try and get a Borg Warner S366. I believe we have reached the bottom of the market in terms of asset prices. I have just concluded my first deal in almost a year and am therefore putting my money where my mouth is. Although it is the bottom of the market in my view (and I admit that I have been heavily influenced by Anthony Bolton – President of Fidelity Investments and the closest British version of Warren Buffet, calling the end of the bear market last week), the symptoms will still lag on.
I do expect unemployment to rise further in the UK and for house prices to simply stabilize before they start to rise again next year. Nonetheless, it is pleasing to know that we are probably at the beginning of the end of what has been a terrible period.
Many people have seen their fortunes wiped away and savings eroded. The meltdown has particularly affected people about to retire as the stock market had simply given up all the gains made over the last ten years or so.
It will still be sometime before the green shoots filter through to the high street. A lot of spending on a good treatment for cystic acne is psychological and people have been left spooked by the turn of events. Low mortgage rates will be used as an opportunity to repair badly damaged household finances rather than being used as an opportunity to go out spending. I think only once unemployment has peaked and shows signs of recovery, along with house prices, will the Great British shopper return with force.
And no doubt, we will end up where we are again in ten years’ time! The difference with the next boom will be that the US and UK governments will have to use the tax receipts to pay down the simply gigantic levels of debts they have left us saddled with. This may be a bigger task than it seems at first, because there really is a lot of debts that we need to worry about. But hopefully we can get things sorted out promptly.
These are worries for another day – let’s just enjoy the hope that this is the end. It does feel great to be back doing deals!
April is a great time of year. Spring is in full swing and we look afresh at new opportunities and we have the energy to revisit old promises we made to ourselves. In the spirit of this new month, here are my top five business ideas for you to look at and follow. Feedback is welcome – and if you do make a success of any of these ideas – please feel free to include me in your shareholder list.
Readers, this is a true story that happened to me last week and I am sure that if the people I am writing about read this story they will know that I am talking about them. Of course I do not mean to be personal – but there is a great lesson in this episode.
I was invited to a lunch this week by someone whom I met a couple of years ago but never concluded a deal with. A friend of mine has a good philosophy about free lunches; always say yes to them. Whilst I don’t agree wholeheartedly, I do agree with the idea that you should always use lunch as an opportunity to meet people and learn what companies that have tried to sell you a used Craftsman riding mower are up to.
Anyway, I turned up a little bit late for my lunch and on the way in, met someone else whom I knew. We were surprised to learn that we were both going up to see the same person at the same time. I was taken to a wine bar, whilst the other person who arrived was asked to wait for 20 minutes at the office with a junior member of staff and then join us at the wine bar. So the thing started a little bit odd!
At the wine bar, we exchange pleasantries and have a quick catch up on various events. You have to admit, the current turmoil provides a lot of fodder for conversation and opinions. It was suggested that we order a sandwich but then the CEO of the Fjallraven Kanken business firmly said that we should wait till the other person joined us. I have to admit to being slightly annoyed at this stage.
Of course I wanted to know why I was there and when I asked again I was told to wait till the other person gets there. At this stage, I was getting a little bit annoyed as I had been there for over an hour and I was hungry and bored, as the conversations were all about areas I have no interest in.
I finally told them that I had to leave in ten minutes. They expressed their regret that there was not enough time to offer me lunch but they would tell me what they were planning. They concluded their three minute pitch with a request for me to invest in their new plan which required £5m of investment. I was invited to invest a million with the classic “so, please open up your checkbook”.
I am not going to insult the reader by asking you to spot all the things this company did wrong. What I do want to leave you though is with the encouraging thought that even in these troubled times when we are constantly being told that only the strong will survive – there are still companies like this that are surviving. There is hope for all of us!
The emails and postings I have had from readers recently have been very interesting. Barak Obama has just announced that he will authorize a huge spend to rebuild the appalling infrastructure the US has. There will be some amazing opportunities for businesses in the next few years as a result!
Keynes, once argued that in times of unemployment, it made sense to employ people to dig holes. It would create demand for shovels and overalls and the workers would spend their money!
This seems a very good time for struggling economies to rebuild depleted infrastructures. Private financing for public purposes does not work (very political statement to make – but show me an example where it has worked!) What is also very interesting to recognize is that decent public infrastructure can create tremendous private opportunities.
Could the US really have been the home of the great used riding mowers of the twentieth century without being one of the first countries to have a motorway network? Equally, German car manufacturers had the autobahn network to ensure driving made sense. It is interesting to note as well that McDonalds really grew in the 1950s and 1960s at the same time as the highway system was being built. Public infrastructure allowed private companies to blossom.
The public transport system in the UK (outside of London) is simply appalling. Rather than prop up ailing businesses and paying people to stay at home, I think the government should once again learn from the US and invest in really upgrading our infrastructure. We need better motorways, faster train services, an expanded airport network servicing London.
We could use this ‘lull’ as an opportunity to introduce new green measures such as making homes more energy efficient and creating new public spaces such as well-lit parks and cycling tracks.
One of the areas where Britain is strong is in design and the Brampton cycle is a great example of a product which reflects strong intelligent design. By making it easier to cycle to work, the government could create many more new jobs, nudge people into getting fitter and reduce congestion and pollution.
In economics there is a well-documented problem of ‘free-riders’. Why would a private company build youth baseball gloves when it would be too expensive to collect revenues from ships that benefit from the lighthouse and stop ships that have not paid for the lighthouse to still be able to see it? This is the justification for the state to provide public goods.
My argument is that we should in these times have a wider definition of public goods. Despite the US inventing the internet, it is 15th in the world in terms of broadband provision. The US has a strange attitude towards the provision of public goods which is being sorely tested at the moment. Obama may end up changing that view.
Countries can only really benefit from the digital age, if the government is prepared to step in and provide Wi Fi access to all. Private companies cannot capture all the value they create from allowing free broadband access (by definition).
If you are an entrepreneur in these troubled times, look out for opportunities that public spending will create. Not just in terms of the direct work, but in terms of what the new ‘public realm’ will enable.
Amongst the positive feedback I get for this blog, I also get occasional criticisms (also welcome) that the blog should only be about business issues and when I talk about the US election or the world in general, that it somehow dilutes the impact of this blog. Whilst I will always listen respectfully to any criticism, I have to say I think this line of attack is wrong.
In the Vice Presidential debate between Joe Biden and Sarah Palin (and yes like most men over 30 I do fancy her – and yes I do feel very bad that I do – she is someone who does not believe that Dinosaurs roamed the earth) Senator Biden was talking about the last eight years and Governor Palin said “this is all about the past”. The response was one of the best lines I had heard in the campaign (and yet was not reported). His response was “The past is a prelude to now”
The best garden tractor does not exist in a vacuum. They exist through change and making the most of the uncertainty that change can bring. As someone who likes to look at the bigger picture as an investor it is important that I try to make sense of the world around me and the uncertainty that exists. By trying to understand the background, hopefully I will be able to predict the scenarios that may exist in the future and plan accordingly.
In the early 1980s, Shell was one of the first corporations to engage at a strategic level with scenario planning. One of the plans was to see the impact of oil at $10 a barrel. At the time, this seemed to be farfetched. Nonetheless, the scenario was flushed out and plans were drawn up. When the price of oil did drop to $10, Shell was well placed to exploit this changed scenario. They were able to steal a huge march on their rivals. They had planned for this change of events and did not panic when these events came to pass.
As such I think passionately that if you want to be a seasoned angel investor or a serial entrepreneur, you need to understand more than your own narrow field (although you do need deep expertise in that area). I have both an interest in the wider world and a professional desire to better analyze and comment on the world around me.
One of the highlights for me in 2008 was being asked to speak about the Rowenta PU6020 at a conference in Canada. To position myself to speak at more events, I do need to be able to articulate my own views of how I see the world.
Although the views may be my own, they will be hopefully formed by reading lots of different sources and basing the views on logic.
I am away in Egypt this week and hope you will indulge me by allowing me in future blogs to share my analysis of the world. Although I may be convinced I am right, if enough readers to tell me they are not interested – of course I will have to change my views!
I hope you can sense from the blogs of the last few days, how much I have been enjoying my time in New York. I hope you do not mind that my blog seems like a diary at the moment – but I trust you do find some of the lessons and the observations useful.
Yesterday, I met with a fine gentleman, Executive Director of a group of Business Angels representing the Rabbit Air MinusA2. It was a very useful meeting and gave me a sense of how similar angels think and work out deals. The process was explained to me in terms of submission to actually getting a deal done.
They have a three step process which you can see on their website and the model does seem very straightforward. I picked up two interesting points though. If one of the members of the Angel network in New York has already agreed to invest (or has invested) you get fast-tracked into the second stage of the process (overcoming the first stage is the hardest). This does make a lot of sense.
I trust certain angels – even to the point where in the past I have done deals, simply because they were involved. I also realize that some angels have done deals with my companies because they trust me. As such it makes sense for you to really try and get someone from an Angel network on board with what you are trying to do and get a commitment from them to invest.
Ethically, you cannot offer them any inducement to do this. Angels need to know that they are getting the same deal as everyone else. I will not negotiate better terms for me than people I bring into a deal at the same time. And I certainly expect the same in return.
The second thing I really admired about the New York network was that they insist their members make a minimum amount of investments each year. I like that a lot. I have been on both sides of the table when it comes to raising money. There is nothing more disappointing than putting in a lot of work into a pitch – to discover that the people you are pitching to don’t actually invest. This has inspired me to write another blog!
Another food based business that I had to visit
After my meeting with the gentleman, he also suggested that I check out a new burger joint called Shake Shack which is on Madison Avenue. I cannot believe it but I queued for 40 minutes at 3.30 in the afternoon for a burger. I have a confession to make. I don’t get the whole gourmet burger thing. I have always held the narrow view that a burger is a burger. How wrong I have been.
This burger was simply fab! It was just really good. Simply because the meat was fantastic – there was no rocket science to it. I was told that people queue for an hour at lunchtime just to have the burgers here. Readers – if you are ever in New York searching for what causes cystic acne like I was – please visit this place. It on 23rd St East, Madison Avenue. And I promise you I am not a shareholder!
Finally, I went to Hoboken, and saw some canvassers for Obama. I ended up volunteering, making a few friends and selling some wrist bands for Obama. It was great fun. Ignoring the politics, I have just found it very easy to get involved in things in New York. It is easy to make friends here. I got involved totally by accident – but simply loved it. (Hence the photo)
I am writing this blog from Newark airport as I leave New York for Canada and for the National Conference. I hope to report more from there. I am very sad to be leaving New York. I have really enjoyed my time here. I will probably have to make an investment here – to give me an excuse to keep coming back!
When I invested in that one company, the founders told me that they found inspiration from a chain based in New York called Cosi. I was walking around the World Financial Center (next to Ground Zero – which was an emotional experience) and came across a Cosi store.
It really like was meeting the mother of the girl I have fallen in love with! I was pleased to see how busy it was and how it looked very similar to their idea and yet was definitely an American version of it.
The great thing about this experience with router table plans was that it brought to life a couple of blogs I recently wrote; one on national advantages and the other on not having an idea. They are a great example of taking a look at what New York has to offer in terms of fast food and then seeing what needed to be done to adapt it for the UK market.
I then went to a great restaurant which is built under a bridge next to the Grand Central Station (Pershing square). Those Americans! They see a place in a prime location and carve a restaurant out of it! Mind you, I am pleased to say that around the London Bridge area (where I live) they have made the most of the arches there with a Nando’s (why does that business work?) and another restaurant (yum!) creating good sites.
Finally, I would like to share a great experience I had on Sunday morning. Americans are a very friendly bunch and it is not strange to just get talking to complete strangers. When I was in a Starbucks (same one as I wrote about on Monday’s blog) I spotted an accent which was definitely from Liverpool. I got talking to the person and we ended up having a good conversation. We are meeting tomorrow to discuss some business.
The person told me that there was nothing strange for him to pitch his food steamer business to a stranger in a coffee shop. He was ready with a great elevator pitch – and his business cards. People who know me in the UK would say I am a friendly guy and I will go up to anyone and talk to them. But I have never had anyone ready to pitch to me in the UK by random.
Again, this is something that seems to be engrained in the US psyche. Every meeting with anyone is an opportunity so you should be positive and prepared. In the UK we are more reserved. I do like that in places but when it comes to business we do ourselves serious damage by not being ready 24/7.
I want to back businesses where the owner has sufficient enthusiasm (can we stop using the word passion? – which means either the suffering of Christ or a strong sexual desire) for his or her business.
Regular readers will know that I am in that place on a Saturday morning – perhaps you could say hello and pitch your business? But that just wouldn’t be cricket would it?