Business Angel Blog

Most business plans I see rely heavily on the assumption that once the funds are raised, a great salesperson will be recruited who will then take the company from where you are to where you want to be. This is dangerous for several reasons.

1. A Good Salesperson who is unemployed is a bit of an Oxymoron, alongside Military Intelligence and compassionate conservatism. Yes companies are getting rid of people at the moment, but if someone is generating sales and precious revenue, they are not going to find themselves unemployed. Sales people who have been fired, or where the company has gone out of business are fine (I have been sacked twice!)

2. No one is going to sell the business like the entrepreneur. For some strange reason a lot of entrepreneurs keep saying “I am not a salesperson”. If you are pitching for investment or pitching your idea – you are a salesperson. And saying you are not a good salesperson is not a good start. I recently saw a business which looked good and they needed investment. The founders though had not obtained any sales. They had got great marketing and media coverage – but no sales. It became impossible for me to invest in the business because no one had truly validated the product. My response was to try and get sales – and then investment can come through.

Many businesses feel disappointed when a new sales person does not boost sales. It normally takes six months to find out if a sales person is any good. Most companies simply do not have that kind of time too afford. So the CEO – and other founders have to keep selling.

3. Sales people (especially good ones) are very difficult to manage and control. I was not the best salesperson, but when I look back I do seriously feel sorry for the people who had to manage me. Most good salespeople have large egos that have to be managed and they require a lot of attention, as well as always being told how good they are. (Sadly, if they do not have these insecurities, they may not make great sales people). At this stage of the business, do you have the resource to do this?

4. Finally, if you do not have the confidence to sell your solution yourself – you will always be hostage to the salesperson’s whims and reasoning. Potential investors will spot that. And of course if you really don’t feel you have the sales skill to sell the solution – you can always contact me and I will be happy to run a sales training course for you! Now there is a salespersons plug!

On paper (always a very dangerous jury), my three Canadian Investments have done better collectively than my 19 UK angel investments. I was discussing this with a good friend of mine who has been an active UK angel for some time and is someone that I think is very good at it. He observed that it wasn’t to do with them being Canadian, but to do with them being my most recent investments.

Upon reflection, this is true, but I also think it is the case that in Canada I managed to ‘enter the angel scene’ at the right level. Because of the way I first got to Halifax, I was only seeing the really good deals. Angel investing requires just as much networking from the potential investor as it does from the entrepreneurs looking for funding.

Most of the first deals I did in the UK were, in all honesty, deals that lots of other people had turned down. If you are a well connected entrepreneur or you have proven experience, you are not going to be doing the very expensive rounds in Angel networks. Again, interestingly, the last five companies I have invested in did not need to pay a broker or a network a fee. With the money being paid out amounting to as much as 12% in many cases, this is a huge amount of money to save and suggests that the best deals are elsewhere.

In the UK, I am slowly networking my way up the hierarchy (there is certainly one here) and I am getting to see better deals. I know this is true because the deals I still see through the ‘traditional route’ such as Angel events are very poor on the whole.

I try to be positive in these blogs and not just whine and complain about things. So what advice would I give entrepreneurs who are not well connected and don’t have lots of rich friends they can tap for money? My obvious answer is to get yourself well connected or at least get some industry expert/ authority to add real credibility to your business plan by endorsing it.

It is amazing how many times investors always say that it comes down to the quality of the management. If there are gaps in your management team – go fill them. At the moment, with the economy being the way it is, there are some great quality people who are underutilised. Now is a great time to get them on board your business.

And just do the plain old fashion intelligent networking. This means not going to networking events (they rarely work). And instead working out who you need to be speaking to and finding out where they will be. (Twitter is a great way to find out).

So just like angels have to network to climb that ladder to get access to the best deals, so do entrepreneurs.

Happy Climbing!

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

My political career ended today at around 10am. My career in politics lasted around two weeks and it was great fun and I met some completely new people whom I was deeply impressed by.

Regular readers of my Blog will know that although I was never a big fan of Gordon Brown, I have been less than impressed by the actions of the new coalition government. They are shrinking the size of the state for ideological reasons; and I do not philosophically have a problem with that. But they are doing so at exactly the wrong time. I believe the UK will enter another recession because of the actions of the government.

When people say that this is the best thing for the UK in the long run, I remember what Keynes said “In the Long run we are all dead”. Someone losing their job is a massive tragedy for them and their family; they will not be comforted by the idea that their lost job is in the best interests of the UK economy.

So rather than complain about what is happening I decided to contact one of the contenders for the leadership of the Opposition Labour Party; Ed Balls. Two weeks I got involved in his campaign. It has been a strange experience but an inspiring one. My advice to everyone would be to get involved in a political campaign (whichever colour or views you subscribe to). You will meet some great determined and talented people and you should get inspired.

I met Ed Balls last night for the first time although I have been working on his campaign for two weeks. I really enjoyed meeting him and in a classic case of being in the right place at the right time, I was asked if I would introduce him and chair a major speech he was delivering today in the City of London. It was strangely nerve wracking!

Get me in front of hundreds of people to talk about business strategy or investing as a business angel and I will not have a problem. I realise I know enough to not embarrass myself; but talking to a room full of journalists and TV crews (live coverage on BBC news!) about something I know little about and you can imagine my fear. So at the end of talk, I decided any involvement I have in politics will be strictly behind the scenes! Hence my political career is over!

I do have to say though that I really enjoyed the talk that Ed gave and I felt inspired. He has bravely broken away from the consensus that we need drastic cuts to public expenditure. www.labourlist.org/the-growth-deniers—ed-balls-full-speech I also found him to be very keen to listen and learn what I thought were the key ways to support start ups and entrepreneurs. I wish him well and I will continue to support him.

As for advice from this blog; stick to what you know and are good at!

Today I have reached the grand old age of 40. It is supposed to be a milestone year with the cliché that life begins at 40 ringing in my ear for some time. So, I hope you do not mind this self-indulgent blog too much.

For reasons which are purely to do with ego. I have always wanted to be the youngest at something; to me it was a mark of being a high-flier. I achieved this mainly by always moving jobs (to my shame, I have never been promoted in a job!).
So getting to 40 is a good time to take stock of things I guess. What are the things that I wish I knew when I was 20?

The journey is more important than the destination. People who are fixated by goals tend to not be happy; even when the goals are achieved. Enjoy the journey as that is the way to be happy.

The only thing money can buy you is time. That is it. Time is the only asset you will not get back. Use it wisely. But equally don’t fret about it.

Watch less TV. I have probably spent 1000 hours of my life watching Eastenders (a miserable soap opera set in London). What a waste. It has also been shown that watching TV does make you less happy.

Stay fit. I have probably spent most of the last 10 years trying to stay in shape. It is great when you do feel good and have control. I would give any person who wants to pursue a career in business this advice.

Get involved in a charity or politics. It helps you see that we are part of something bigger and that we can all make big differences to the life we have around us. Don’t passively complain about things. My politics have been all over the place; but that is OK. Why is it good to be consistent with your views? Should they not be shaped by what you experience and see around you?

Outsource as much of your life as you can. In the last six years I have not owned a car; I have outsourced my travelling to public transport. It has meant I have so much more time to listen to music, read books or just think. It is great for me to have that time back. What do you do at the moment that could be outsourced? Try and outsource everything! Remember point 2)

Work with great people that you like working with. It makes life fun and it ensures you are always learning. I have wasted too much time working with and for people I did not like. And don’t buy into the idea that sometimes you have to work with people you don’t like; that’s just wrong.

Don’t listen to lawyers; they are trained to say no!

Always be learning. Two years ago I started learning Italian. It has been a great source of achievement for me being able to hold small conversations in Italian. Always be learning something new – every year. In the UK, lifelong learning is not a big idea. In North America, people are constantly updating their skills and going back to school. We need more of that culture here

And marry someone rich!

In my younger years (40 this week!), I used to enjoy listening to Billy Bragg; the title of this blog comes from one of his songs (quoting Thomas Paine). It has long been recognised that we need to understand that different cultures mean we need to be sensitive about imposing solutions which appear sound. There are massive differences across Europe in terms of cultural attitudes towards management, leadership, accumulation of wealth and entrepreneurship. Something that works in the UK, may not work in France.

One of the interesting experiences I had about five years ago was trying to help a high flyer in the corporate world try and get involved in the ‘entrepreneurial scene’. It just did not work out for him; he could not get adjusted to the mentality of working in the SME sector and could not understand why as he did have a glittering career behind him. He eventually gave up and returned to the corporate world.

Equally, many high fliers in small companies do struggle when they join large companies. In my career, I did enjoy going from a start up (which was a total disaster) to Pricewaterhouse Coopers. Everything was different but I loved the atmosphere there and thrived (till I got bored with the internal promotion protocols).

Last week the government appointed Sir Phillip Green to an advisory position to help find savings in government expenditure. On paper, no one is better qualified than Sir Phillip to do this. He is one of the business people I really do admire for his business acumen, skill and judgment. However, he has walked into an area where culturally the fit could not be worse.

Sir Phillip, despite being one of the wealthiest men in the UK avoids paying any capital gains tax through virtue of being a Non-Domiciled person. There is nothing illegal or even suspect about that. He has organised his tax affairs like most people to minimise his tax bill. But that seems incompatible with a government agenda that is about maximising tax receipts and minimising expenses. For example, the government has just launched a big crack down on welfare ‘cheats’. The amount that is lost through this is less than could have been collected if Sir Phillip had paid UK taxes on his capital gains.

In business, owners can drive through changes just by issuing directives. Things happen when they want them to happen. The culture in government is very different and I think Sir Phillip will struggle with that different culture. I am still struggling to see why such a successful businessman would want to put himself under that spotlight.

The lesson here for Entrepreneurs is that sometimes when recruiting people (and more so with consultants – a whole different blog on that!) make sure they understand your culture. All cultures are not the same!

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.

In the last few weeks the new government has decided to cull the Film Council and all of the RDA’s (Regional Development Agencies). I think this is a case of throwing the baby out with the bathwater.

Thriving dynamic economies often have thriving state sectors as well. The lesson from the Pacific economies for me is how the role of the state can play a significant role in ensuring dynamic conditions for the private sector. Many business ventures require scale and market development which would only be possible through government action.

McDonalds benefited from the development of the Highways in the US in the 1950s and 1960s. They were able to acquire cheap sites on Highways and develop the notion of fast food. The internet started as a way of government computers being able to talk to each other. Which private organization would have invested in developing the Internet as governments would not have allowed this to remain the property of one company?

My problem with the Con Dem government at the moment is that it is pursuing ideological objectives (nothing wrong with that) but using the current state of our finances to justify these actions. Under President Obama, the US has used the same state of the economy to justify the massive expansion of the state. So it is not a matter of the state of the economy but about your own beliefs.

I am not sad to see RDAs and Business Link in particular go. The interaction I had with Business Link was extremely poor and I felt that they did an extremely poor job. However, that does not mean there is not a role for a state funded and run business support agency. Many RDAs were also extremely poor but some as NWDA (North West Development Agency) did do a great job in trying to create the right conditions for private companies to prosper and grow.

I have come to the conclusion that we in the UK do public sector business support really badly. But that is an argument for reform not axing. The Film Council did a great job in promoting the UK film Industry and in supporting an industry that does need infrastructure investments. It is hard to accept that this was not ideologically driven when the film industry was one of the few areas to demonstrate a strong return on investment. Culture was the only industry to show growth every quarter of the 64 quarters of GDP growth we had!

Of course it is difficult for my politics to not come out – but I worry that by attacking organizations like the BBC and the Film Council the new government is throwing the baby out with the bathwater. We should go back to basics and ask the question; “why do these organizations exist in the first place and do they deliver?” The RDAs and Business Link did not so they should be replaced by something that does work. The Film Council did deliver.

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.

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?