Perhaps out of ignorance, but more likely out of ego, I rarely think the Dragons on the Den have valuable lessons to share with other Business Angels although yesterday I have to admit I did learn something from one of the Dragons; Theo Paphitis.

I have always been in favour of ‘ratchet deals’. The plan here is that I may initially start off with 10% of a business but if certain targets are met then I would get down to 5% - with the founder/ management team get back that 5%.

This has always seemed to me like a good way to incentivise the management team and I have done a few of these deals. However, Theo put a different spin on it which did get me thinking.

In this particular case, the Entrepreneur wanted a lot of help from Theo and wanted to do a ratchet deal whereby Theo’s original 20% investment would come down to 10% if certain targets would be hit.

Theo made the point that the ratchet deal would not work as “he would be working hard to make himself poorer”. I have never thought of it like that before but I guess it is a valid point. As I have mentioned in the past, it is important that interests are always aligned. But ratchet deals only really work where the investor has nothing but a passive role.

And in many cases it really is best if the investor is confined to a passive role (I have seen many investors mess businesses up with their involvement). But if the investor does have skills that you need and you want them to get involved, then a ratchet deal will not work.

So, I have learned something about Angel investing from Dragons Den!

Oh and just for a bit of fun

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When I was younger, I used to love watching wrestling on world of sport on a Saturday morning. You had characters like Big Daddy and Giant Haystacks who were personifications of good v evil in the wrestling ring. It was a family affair and when I learned it was all a fix – and it was simply play acting, I was truly upset and could not bring myself to tell my parents.

The same thing happened when I learned that the answers some of the contestants gave on Blind Date were scripted. There is a very thin line between reality and entertainment. One of my favourite reality shows is Wife Swap (I think it is a good experience for the contestants and most of them seem to take something very positive and life altering away from the experience). I did notice though that the US version does include a ‘warning’ that some scenes have been scripted to add dramatic effect.

I think Dragons Den should come with a similar warning. There is a book being published by one of the ‘success’ stories from Dragons Den. In her book, Sharon Wright claims that James Caan in particular treated her in a manner which was not an accurate reflection of what was agreed in the Den. In a nutshell, he wanted to change the terms of the investment from an equity investment to a loan investment and wanted to charge for his management services.

At least Sharon got to that stage.

I suspect that most of the ‘deals’ agreed in the Den never transpire. I also think that the BBC should add a warning sign at the start of the program. To appear on the program, Dragons need to give up an extraordinary amount of time to the program. They do not do this for business reasons. They want to have fame. There is absolutely nothing wrong with that as long as everyone knows that this is the game being played.

Like The Apprentice, my problem with Dragons Den is that it creates an illusion that this is what business is like. People are not unpleasant or rude in business. Angels very much want to sell themselves as potential investors to attractive companies. There is a hierarchy of angels – well connected angels who are seen as adding value tend to get the best deals shown to them. I have noticed a massive change in the quality of deals I am getting to see now compared to six years ago when I first started.

So do enjoy Dragons Den – I love it and it has got people thinking about business models and business in general. But please remember it is just entertainment – and it is great at that. Sadly though, as much as he is trying, I don’t think Peter Jones will ever be funny.

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One of the interesting things about having lived in both the UK and India (I was there from the ages of 9-11) was you do get to appreciate different cultures and you see how things are different. From the trivial example of restaurants where if you want to have a meat dish you would ask for the Non-Veg option! In the UK, meat eaters are still the norm.

The thing that seems very different in outlook in the West is the need to have an investigation into something or an enquiry and of course a scapegoat. In India, and I suspect other Eastern countries as well, fate is seen as playing a role in many things.

These thoughts were prompted this morning by learning that BP have ‘changed’ the role for their CEO Tony Hayward – he is being served up as the scapegoat. Everyone knows this, but yet it is seen as the right thing to do.

My concern with this and with all the enquiries we in the West seem to be obsessed about is that we take false comfort from their findings. There are some landmark enquires which can alter the face of organizations. Lord Scarman’s report in 1981 looking at the riots that took place in Brixton (South London) changed the way policing was carried out in the UK in a very extensive manner and has I think professionalized the police much more.

But then there are lots of enquiries where people are simply seeking vindication for their views. And I think many businesses fall into this trap of hiring consultants at great expense to tell them what they already know.

Watching Dragons Den last night made me realize as well that too many entrepreneurs ‘outsource’ the learning of their business to outsiders who write great business plans. This is why I will NEVER invest in a business where the management team do not own the business plan. I am highly skeptical of great looking business plans that are written purely for the purposes of raising money.

Of course that is a very important reason – but it would be even better if you learned about your business at the same time. And of course be careful to avoid hearing and seeing and what you want to hear and see.

As for me, I blame the scapegoat.

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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 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 product” or “how do you make money”, you have probably blown it.

So here is my guide for what you should focus on

1. What problem do you solve? (Evidence of the value of the problem please)

2. How do you solve it? (Does it work?)

3. Who are your clients and how much will they pay for the solution?

4. Can you make a profit from engaging in this?

5. How can you really grow the business so that in 5 years (used to be 3 years – but time for Angels to get real!) my investment is worth 10x what it is today?

6. Who are the team? And why should I believe that they can deliver on the above?

7. Tell me all the things that can go wrong with the plan – and what contingencies do you have in place to cope with these?

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?

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Every so often it is nice to be able to help out some of my companies with a quick plug.

This is a short film that was made for AngelsDen by one of the creatives on Wooshii, (a company I have invested in and of which I am currently Chairman) .

A few characters you may recognise within…

For more information on AngelsDen head to angelsden.co.uk Where entrepreneurs and investors meet

Video and Rich Media powered by Wooshii.com

Plug - If you want an online video, animation, presentation etc then head over to Wooshii where they will match you up with a ton of creatives, from all over the world, that can help you out. wooshii.com

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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 ‘Google’ 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 Amano) I have realised 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. 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 (Leadz 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.

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Like finding a suitable name for a new band that you are going to launch, much time is wasted in defining luck and the importance it plays in business success. I like the definition that luck is where opportunity meets preparation.

A successful friend of mine told me that he believes that most of us (but not all) get the same amount of luck in life. It is just that some people are able to take advantage of it and some people pass up on the opportunity.

When I purchased my very first property to rent out, I remember someone close to me at the time telling me not to do it because “if it was that easy, everyone would be doing it”. It is true that you should avoid acting with the herd, but equally, it is not a good reason to not do something.

If you pardon this ego-trip, I would like to share the history of my Canada experience with you and highlight the role that ‘accident’ has played in my latest venture which I am very excited about.

My good friend and business partner, Fergus got off a plane from Portugal and told me that he thought I should write a blog. This was over a year ago – and with a lot of help from him, I started writing a blog.

This blog got ‘picked’ up by some Canadians working at the National Angel Capital Organisation and a guy called Bryan Watson – started commenting on my blog and being very encouraging about the whole thing. Before his comments, the whole thing felt very lonely! I was as a result of this invited to speak at their Annual Conference in Halifax Nova Scotia, 11 months ago.

Whilst there, I met some very interesting people including someone who worked for a great University based there called St. Mary’s University. When I next visited Halifax in February this year, I spoke at the University to some business students. I also met a person there who invited me to have lunch with her and some of her business partners.

At that lunch on the last day of my trip some interesting discussions emerged and it seemed possible that there could be the makings of an interesting business venture between us.

Earlier this year, I was also at a European Angel Conference in Madrid and I met many of the Canadians I had first met in Halifax last October again, including the President of the Organisation.

I then went to Halifax for five weeks in May this year to start this business venture. It was obvious after just two days for reasons that I won’t go into (for fear of being sued!) this venture was not going to work. I then contacted my old friends from the conference and they invited me to a few dinners and networking events. By ‘accident’ at one of these dinners, I happened to be sat next to two company executives who were both looking at the UK market for their business. I was able to help them (and since then I have invested in one of them).

Because of this evening, I was also introduced to some local government officials who were able to put me in touch with other companies that I could help and as a result of this, I was able to get a lot of paid work to help local companies – and am now going back to Canada at least one week in four.

In the interim, I have been able to use this experience of Canadian and UK angels to launch a new venture with the head of the Canadian Angels called www.newmarketspartners.com

This venture will bring 25 of the most promising Angel funded Canadian businesses into the UK on September the 30th. These companies are looking for UK based angels with market expertise and contacts in their chosen fields to help them expand into the UK.

There is another trip taking place on November the 25th in Toronto where UK companies looking to expand into North America will be invited to present to North American based Angels with strong market expertise.

The partners in this venture believe that angels add most value when their money is combined with expertise and market know-how.

If you are an angel – please email me and I will be able to send you an invite to the event. If you are a company looking to expand into North America, please get in touch via the website.

Back to the point of the blog! When I talk to entrepreneurs, what strikes me is how fluid their plans were and what an important role accident played in shaping the way their business looks today.

The lesson here is to go with the flow – but always be looking for new ways in which you can help others.

I do hope you found this blog useful – who knows what this may lead to for me or for you!

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As many regular readers of my blog will know, I am now increasingly based in Canada (at least one week a month). I love the place that I have settled in completely by accident (Halifax, Nova Scotia). I have done many speaking engagements there and recently wrote a guest column for a local newspaper.

After my feature in the newspaper, the hits on my blog went up substantially and I was contacted by many people and offered a few good deals. It seemed to prove to me the old adage about the value of PR and profile. This blog was inspired though by me reading the weekend papers – more about that later!

A good friend of mine who I have worked with for almost ten years is very private. He easily qualifies for a place on the Rich list – and yet never appears there. He confessed to me when I asked him, that he pays his accountant a lot of money to make sure he never appears on any rich list. I also learned that someone else I knew (calling them a friend would be an exaggeration) was paying their PR agency to ensure that they always appeared on the annual rich list.

Two very different approaches and yet they both made sense. The first person did not need the PR. He worked in a ‘closed’ industry. The people he did business with, knew about him and what his company and values were all about. Other than a massive ego massage, there would have been nothing for him to gain from appearing in a rich list – or indeed any other form of PR.

The other person wanted to be taken seriously and ‘break into’ the top tier of deals. They were in the business of selling products to retailers. They had calculated that if the people they were selling to, thought they were ultra-wealthy, they would be more likely to get a meeting and want to befriend them (by saying yes to doing a deal). There is a cold logic that runs through this. However, the real reason is ego. And there is nothing wrong with that motive at all. I should know – On many occasions, I have done things driven purely by ego.

I have talked to many people about the Dragons Den experience. You get the feeling that when the cameras are off, many of the dragons would rather not be bothered with these new deals they have done; it is a massive ego trip for them. The Dragon whom I most respected was Doug Richards who was there at the beginning – but then left because he did not have the time to fulfill the filming commitment (it takes an entire month to do just one series).

The problem I do have with exercises in ego is that it is unfair on the person seeking to do a deal with you or funding as they may believe your reasons for doing something with them are real. This brings me back to the inspiration behind this blog.

As I mentioned, I saw a couple of people I know well featured in the weekend papers. They were having very good coverage and I am sure they will have been very pleased with the write ups they got.

Any entrepreneur reading these interviews may be tempted to spend a lot of time and energy to contact these people as a result of what they have read. The reality is that from what I know of these people; they would not be able or willing to support new start ups.

So my advice to entrepreneurs seeking funding is to be wary of people who have very high profiles. Most angels conduct their affairs in private and want businesses to put the effort into finding them (it really is not that hard). There are of course exceptions to this. One of the most active angels in the UK (and also the largest single angel investor) has a high profile – but not because of his angel investments but because of the deals he is involved in.

I hope this is useful advice from a publicity seeking blogger!

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In sales we are taught a very important discipline. You have to try and ensure that you are always on your customers mind when they think of their needs that you can fulfill. This becomes your reason to call them at regular intervals and develop your relationship with them.

I was reminded of the importance of this last week when I was in Manchester coaching some businesses (great ones by the way!). I was leaving a company when I received a phone call from someone whom I had met about two and a half years ago through the Enterprize initiative. We had stayed in touch as I liked him and his business idea (which revolved around the taxi business).

I had been helping him with the occasional phone conversation every now and then. When he phoned me, I told him I happened to be in Manchester. He wanted to see me and I explained to him that I was off for a meeting with a fellow Investor who is based in Manchester – and I only had 20 minutes to get to Salford from Manchester, so I couldn’t really talk.

Three minutes later, he came to pick me up (you could never do that in London!) and we had a conversation whilst he was driving me to my next meeting. He basically made a very impressive elevator pitch – but had 15 minutes to do it.

As it happens, the investor I went to see complained that he had not seen any good investment propositions recently. He wanted to see me to ask me if I had seen anything of interest. As he was the last person I had met – I was able to mention the proposition I had just heard. He was impressed when I told him how I got to hear the pitch; here was someone (the entrepreneur) making the most of co-incidence (me being in Manchester) and seized the opportunity.

He is going to meet the entrepreneur and may invest a considerable amount in his business. Of course there are no guarantees – but the entrepreneur has put himself in a great position and demonstrated first hand certain qualities.

I guess the moral is – that I am very cheap - a free lift or lunch will do it!

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If you had read one of my first few blogs, you will know that I am extremely critical of the huge (billion dollar plus) self help industry. (By the way a billion is one thousand million in the UK and a million million in the US – a trillion is one thousand billion in the UK and a very large number in the US!)

It is amazing when you go to any shop at any type of travel terminal, the books that are most prominently displayed are the ones belonging to the self-help genre. They only help the authors!

By definition, if the books worked you would only ever need to buy them once to solve each problem. I really would like to meet the ‘sixty second manager’ or the ‘reawakened giant’. Buying more than one book on effectiveness implies that the books don’t quite deliver. The book that has really made it big in the last couple of decades has been “The seven habits of highly effective people”. I know many people who have that book on their shelf and yet very few that have read it. I like the audio version that tells people to focus and to have narrow vision – not the best thing to pay attention to when you are driving I guess.

I am not disagreeing with what some of these books say – or the bolt of energy they may give you from time to time. I just really doubt their power to actually make you feel better or transform you. I was therefore heartened when two weeks ago, a report from my new adopted country, Canada, seemed to show that self-help books can actually lower your self-esteem.

The crucial ingredient of any self-help formula is the self-affirming mantra. This is where you are encouraged to say to yourself “I am brilliant/ effective/ funny/ charismatic/generous” (enough about myself – let me get back to the blog). These affirmations said with enough conviction and over enough time, will lead to you becoming that person you want to be. There is something sinister in this. If you do not end up becoming that person (and trust me you wont through this exercise) you are made to feel that it is because you do not believe enough. You cannot become funny just because you will it. And all the money in the world will not make Peter Jones (from Dragons Den in the UK) funny or charismatic.

I am always nervous about self-affirming types. I have always believed that if you want to be effective or anything else – just do things that demonstrate you are effective! If you want to be thought of as generous – behave generously! To me it really is as simple as that.

So, save your money – and wait till next year when in a complete turn around I will be releasing my own self-help book!

Pre-orders will be accepted from now.

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