Business Angel Blog

So once again, I find myself apologising for not having posted a blog for so long – although this is the longest period I have gone without and sadly, I received no complaints at all about no blogs!

I always enjoy the festive break as it is a great time to reflect and take stock of what you have done and what has yet to be achieved. It is also one of the few times of the year where you can take a break without worrying about the calls going unanswered.

The other interesting thing about personal ‘stock takes is that it is one of few activities that really reveal gender differences; men tend to overestimate what they have achieved and women tend to underestimate what they have achieved.

Everyone has been saying how they expect 2012 to be a difficult year. For once, I would say there is merit in the consensus view. The Euro drama has not played itself out and I just think the European leaders have not acknowledged the full scale of the situation or how powerless they are.

I am a very proud and staunch European but the Eurozone simply does not make economic senses. Along with a single currency you have to have single points of control. There are (and have always been) two Europes; a Northern Europe and a Southern Europe. What does make sense is to have two ‘Euros’ one for the North and one for the South.

There is no hope for Southern Italy (which I love) and Greece to compete with the super efficient Germany and Scandinavian economies. Normally, free floating currencies will compensate for these inherent differences, but they haven’t. Germany is benefiting from a massively undervalued currency (for them) really helping them to boost their exports (last month they overtook China as the largest net exporter!) and Greece and Ireland are seriously being hampered by a very expensive currency (for them) not allowing them to find the right level for their exports to be competitive.

The current economic management of Europe is a fantastic manifestation of Nietchzse’s maxim “principle is the enemy of the reason”. The leaders are so wedded to the idea of making the Euro work that they are prepared to let reason fly out of the window.

And for once, we in Europe all need to wake up to the idea that whilst the Germans are being asked to dole out more to support the Eurozone, they are by far the largest beneficiary’s of the Eurozone as well. There is something fair about them being asked to pay more towards the cost of keeping Europe solvent.

The hope for me is the USA. The economy seems to be moving again and I expect Unemployment to dip below 8% by November, ensuring Obama’s re-election. I do think Obama will win – and win convincingly. The main reasons being that the economy will improve, Romney will fail to ‘super-charge’ the Republican base (a strategy that Karl Rove deployed to terrifying effect in 2004) and I do not think in this year, Americans are willing to vote for a Private Equity guy (just see the anti-Romney video that his ‘colleagues’ in the Republican party have produced).

The UK will also benefit from the Olympics and I do not think we should underestimate the effect that will have on the UK economy. Along with the millions of visitors, it will bring lots of advertising dollars as brands will be desperate to communicate with that very attractive demographic.

And of course, inflation is showing signs of easing in the UK but I do expect things to be very tight here as companies continue to hoard cash and few investment projects get the go-ahead.

So…….

If you are an entrepreneur what does this all mean?

1) Now is a good or as a bad time as any other to start up
2) If you are seeking to work on Government financed projects – forget it
3) If you are looking to export – that would be a good strategy, go for markets are are in good health such as Northern Europe.
4) Export quality. It is going to become harder and harder to export on the basis of price alone.
5) Shop around in terms of the ideal location for you to be based as an entrepreneur. I did a lot of travel last year and I was amazed at the support available to attract and retain start ups. (I will be writing a blog about this soon) but be very flexible in your thinking.
6) There will be some great restructuring, management buy out opportunities. Get together the key skills needed to run an enterprise and you will be surprised at the opportunities available to you as companies continue to focus on their core activities.
7) Don’t give up.
If it’s really not working – learn when to give up.

And as always I wish you the best of luck for the New Year.

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!

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!

The economic environment we are in is a big determinant on entrepreneurial activity. I am a believer that start ups which start in a recession can often do better than companies starting up in a boom. I do think though that the UK economy is going to be heading into another recession/ slump very soon.

It is important that entrepreneurs recognise the circumstances that they will be trading in. Starting in a recession is very different from trading into a recession.

My views on why we will go into another recession are just mine – and better placed people than me, will no doubt disagree. Firstly, the recovery the UK is going through at the moment is very fragile and although inflation is higher than the target range, it is predicted to fall sharply.

Public expenditure is coming down sharply in the UK. Some cuts (£6bn) have already been announced and another set of cuts will be announced on the 22nd of June. This will of course negatively affect total demand in the economy. Taxes are also set to rise, and if VAT goes up as widely predicted to 20%, it will have the effect of adding 1% to the inflation rate.

Sterling being very low at the moment against the US$ and Euro also adds to pressure on inflation (by increasing the price of imports). The ‘problem’ with this type of inflationary pressure (as well as with VAT increases) is that they are shocks to the inflation rate and don’t represent excessive demand. Nonetheless, the Bank of England which is charged with maintaining a low inflation rate may need to raise interest rates.

I hope they do not raise rates as I think demand is going to be considerably lower in the economy without a rise in rates. An increase in the interest rate would precipitate a recession.

The point of this blog is that if you are looking at starting up – now is a time to be a bit more cautious than normal. You may be better off starting in a year or two. Equally, if you are trading already – just be careful, we are most certainly in for a bumpy ride

Every election we are promised an interesting one. The 2010 UK general election is truly exciting for a number of reasons. Firstly, this is the first election for a very long time where all of the party leaders are facing their first general election as leaders. Secondly, after half of the campaign has gone, it is still anyone’s guess as to who will win. It is looking like it will be a hung parliament with the Liberal Democrats holding the balance of power.

Not surprisingly, I am a natural conservative. I believe in an entrepreneurial Britain where what you do is more important than where you came from or what school you went to. I believe in low taxes, free markets and little government activity in the economy (I only believe this in the UK – where the agents of government activity are third rate – although this sweeping generalisation excludes the very impressive people we have at the Treasury and Whitehall. In Canada by contrast, most of the staff I have worked with in Government agencies are really impressive.)

Despite the above, I am disappointed in the conservative party and cannot bring myself to vote for them. I still believe in a cabinet approach to government. I am no fan of Gordon Brown, but when I look at Alistair Darling, Ed Balls, Yvette Cooper, Lord Mandelson, Liam Byrne and Shaun Woodward, I see a team of proven talent that I am convinced are better placed to face the challenges we have coming our way.

The Conservative cabinet is very weak with only Ken Clarke a real heavyweight. These times call for a talented team. As an angel investor I would never back a weak team – not even if they had a great leader. If you think about it, elections are times when we are all asked to become Business Angels. The average person will ‘spend’ £80,000 over a five year period in taxes. We are being asked who we trust best to spend it.

Of course there is a philosophical dimension; I would not back the best management team in the world if they were selling something I disagreed with. I remain convinced that the best way to build a more dynamic and entrepreneurial society is to also build a fairer society.

I wish to accumulate much wealth in my lifetime but I also accept that being able to pass on your wealth gives your children a huge advantage in life that makes society less fair and less dynamic. Everyone feels angry about inheritance tax, but I remain convinced that it is a fair tax. Children of wealthy parents have so many other advantages handed to them (education, connections, confidence etc) that give them a head start that a high inheritance tax seems fair. (I have just managed to lose most of my blog readers!) Survey after survey shows that if you ask people what they think of ‘death tax’ they give you a very strong opposition to them. But ask them if they would rather have a high inheritance tax or high income tax – and you know what they will say.

Yet the conservative party flagship piece of tax policy remains to lift the threshold of inheritance tax to £1m. Then I look at what the Labour administration has achieved – and I am most proud that we have now joined the modern world by having a minimum wage. It was disgraceful that so many conservative politicians opposed this. I do not wish to live in a society that allows UK citizens to work for £1 an hour (as many were in the catering trade).

They also gave the Bank of England independence to set interest rates. This has been a hugely successful move which has given businesses the most important thing they need; stability. Interest rates and inflation have both been very low over the last 12 years or so.

I also have to be honest that I would probably not back a management team made up of people from very privileged backgrounds; I don’t think they would ‘get me or their customers’. As such, I can be accused of discriminating against Cameron and Osborne because of their background. I am sorry but this would be true. There seems to be a lack of authenticity when I see Cameron ‘mixing with the hood’ and talking about the problems of ‘broken Britain’.

As I have said before, I am no fan of Gordon Brown, and I may end up voting for the Liberal Democrats. An ideal scenario for me would be a Liberal Democrat – Labour joint administration, with Gordon Brown replaced as Prime Minister (there I have lost the labour supporters as well.)

We are without a doubt living in a time of volatility and business planning departments everywhere are frantically busy trying to create scenarios and the impacts that they have on cashflows.

Sadly, small businesses do not have that luxury (or curse). Many companies do suffer from paralysis through analysis. The other danger is of course that you read to widely and therefore get confused by what each different economist says.

It has widely been evidenced that past performance is actually very poorly correlated with future performance in numerous fields. So as a small business you have the ability to sometimes just plough your own field. But to add to your confusion, what do I think is going to happen.

The British and US economy is heavily dependent on consumption (it makes up some 70% of the GDP). Consumer demand depends heavily on disposable income. In turn on an aggregate basis, this depends on

1. Employment levels. Unemployment seems to have stabilised around the current level of around 2.3m and in the US seems to have peaked

2. Taxation. Disposable income is obviously dependent on this. Tax levels will have to rise significantly. There is no other option.

Much is made of public spending cuts. However, most public spending is related to the state of the economy and is mandatory, with an increasingly elderly population, it becomes difficult to contain let alone cut spending on health, pensions and other welfare. So no matter what governments say, cutting public spending remains a very hard thing to do.

I also expect the next government to be a weak government (in terms of the majority it will enjoy), and in that situation it is easier to raise taxes than cut spending. (Ironically, the lobbying power of a department is stronger than all taxpayers!)

Therefore taxes will be raised with VAT going up to 20% (if the conservatives win) and Income tax and Capital Gains tax going up if Labour hold on to power.

3. Disposable income is also heavily related to the level of interest rates (this is not true so much for North America where most mortgages are fixed for a period of 15 years plus). In the UK most mortgage holders are on variable mortgages.

So if you have a £100,000 mortgage a 1% cut in interest saves you £1,000 a year. Interest rates have come down by about 3% from their recent peak (if you have a £300,000 mortgage which is common in London, this is a massive saving of £9,000 per annum)

Interest rates in turn are dependent now to a large extent on the level of expected inflation. Inflation is set to soar. This is for a variety of reasons including the silent rise in the price of oil (it is back to $80 a barrel). And a weak pound will lead to inflation as it means the cost of imports becomes more expensive. Finally, if VAT does go up to 20% that will add about a full percentage point to inflation.

For these reasons and because of the huge government borrowing levels, interest rates will have to rise.

The impact of rising interest rates and taxation will dampen consumption. Our best chance of avoiding a ‘W’ shaped recession is to hope for a growth in exports. The chances of this do look good actually. Our largest markets, the US and Europe, are recovering and a weak pound makes our exports more competitive. I am doing my best through increasing my sales in Canada!

So , what does this all mean?

In my opinion, consumer demand is going to soften and possibly lead to another downturn. So if you are starting a business you will need to be aware of this scenario. So look for something that allows businesses and consumers to cut costs or to have a cheap treat. Or, really look to overseas markets. You would be surprised to learn how much help is available to UK based companies to help them export.

Or the best advice may be to simply ignore yet another prediction!

There are two main reasons why I never pursued a career in finance (or the City as we in England describe it). One; the city would not have had me. Two; a career in finance appeared to be dull as heaven. (I have been told that heaven is only for people – so the idea of spending eternity as a vegetarian – sounds a bit dull)

Business to me has not been about making money; money is simply the measure of your success in a business venture. It is rather like saying to an athlete – why work so hard for a gold medal – I can buy you one off the shelf. It is about trying to persuade consumers to purchase your product because you have convinced them that your product/ service will be good for them.

People in the city tend to be obsessed about making money for the sake of making money. Don’t get me wrong; they are vital to the interests of the UK economy. The city generates some 25% of the tax revenues for the UK. This idea of introducing salary caps is too be resisted even if people and companies can not be persuaded to reign in their excesses. And the conservative party should be thoroughly ashamed for not defending the rights of people over the age of 18 and companies to enter into private arrangements over what they should be paid for a service that is vital to the national interest.

But the main thing I wanted to say was that people in the City tend to take themselves way too seriously. It must be all that training around money – and yet when they do relax and party – they tend to do so in the most obnoxious and loud way possible. It must be the Medical student syndrome. Those of us who went to University with medics will know what I mean. Because they had to study a fair bit, they had fewer opportunities to party – and they seemed to make up for it when they did party. Scary to think, that I now rely on those people to help me when I am at my most vulnerable.

As an entrepreneur your greatest asset will be your personality. Make sure therefore it is a good asset. One of the things that will help you is the ability to be able to laugh at yourself and not take yourself too seriously. I cannot stress that enough. Friends who have known me for a long time (or at least before I began my career as a business angel) are more important to me now than they ever have been in the past. They know the real me – not the person who writes business angel blog (although I try to be as honest as possible). And as soon as I do my pompous routine – they put me back in my place.

I always remember one day borrowing a car from the taxi business I had invested in. I went to pick up my then six year old son in the taxi. He was thrilled that his Dad was a taxi driver. He loved telling his friends at school about that. He is now nine and finds the idea of me being an international investor and entrepreneur really dull!

I have stayed away from writing too many blogs recently about politics as I was getting feedback from some readers that I was writing far too much about politics rather than about business. I think that was a fair point, but it is hard to ignore the events going on in England at the moment.

My parents were from India and the thing that you realize very early on when you try to get anything done in India (even trivial things like getting a phone connected or a driving license issued) requires the greasing of palms (or bribes being paid). It is accepted in countries like India that corruption is a way of life. And it is not a ‘third world thing’ either. Italy celebrates its corruption. The size of the black economy there is estimated to be a staggering 30% of GDP. There is honesty to this approach though.

What I have always found disconcerting is the British approach that we are somehow above reproach. With the publication of the MP’s expenses in the British media this week, we have found out exactly how greedy our politicians have been up to this point.

It is simply disgraceful that the politician in charge of law and order thought it was OK to have the taxpayer pay for pornographic movies, or for her sisters house to be paid for as she claimed to have been living there. The Minister in charge of the Police was claiming to be living at his parent’s house (when his own home was only 12 miles away) so that he could claim a second home allowance. The whole thing stinks. What about the Foreign Secretary who thought it was OK for the state to be paying for his baby’s pram?

The defence that all politicians have jumped to has been that what they were doing was within the rules. How many of these same politicians were lambasting Sir Fred Goodwin for doing the same thing? The other difference is that somewhere along the line, something must have kicked in which made the politicians realize they were doing something wrong.

The Inland Revenue has a good and robust test for allowing business expenses. You have to demonstrate that your expenses are wholly, exclusively and necessarily for the purpose of your business. For example, a barrister can claim the cost of a wig, but not the cost of a black suit as that can be used for other purposes other than wearing in a court of law. I would like to know how Keith Vaz MP felt it was in the interests of the taxpayer to purchase leather chairs worth £2600 at their expense.

There is a business point here. It is about moral leadership. You cannot respect a CEO or an entrepreneur who is cutting back on staff pay or numbers whilst enriching themselves at the companies expense by for example having moles removed from their garden (yes – it is true!). How hard will it know be for the government to ask us to pay more in taxes and ask us for restraint in the public purse when they themselves have been showing no such restrant.

I have always had a very low regard for politicians and this episode has done nothing to change that opinion. There are some notable exceptions such as Hillary Ben and David Cameron (you may argue that he does not need to because of his private wealth – but the richest MP in the Cabinet still felt compelled to claim £1.09 for a Pizza)

What this episode has demonstrated is that although business people make a good target to attack for politicians, we as a group can rightly claim to have a higher ethical code that the one that has been demonstrated by them over the last few years.

Britain is a great country with a very generous and liberal people, but do not think there is no corruption here. There is – it is just a very British version of it – legal, organized but still utterly wrong.

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. 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 stockmarket had simply given up all the gains made over the last ten years or so.

It will still be sometime before the greenshoots filter through to the high street. A lot of spending 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.

These are worries for another day – lets just enjoy the hope that this is the end. It does feel great to be back doing deals!

One of my favourite comedy shows is back on TV. The Apprentice sees the return of 12 very brave contestants who have no fear about committing career suicide on TV. Mind you, with such grand titles as Global Strategist and Estate Agent, you feel that the economy will manage to somehow soldier on without their talents.

I have always had a problem with the way The Apprentice portrays business and what it takes to be successful. I do not claim to be an expert in business, but in my many years of being involved in business, I have yet to have the pleasure of working with these two-dimensional character types.

We had the one guy with the braces (don’t wear them until you are 35+ and by the way there is never a right age to wear elasticated trousers) who told us that for him “making money was better than sex”. The mind boggles with what kind of life he has led to make that comment, and I feel sorry for his entire ex’s. We had the guy who thought it was funny to say that in house, the women did all the cleaning. Wouldn’t half of the population just love to work for him?

But what really worries me is that these talentless self-obsessed bunch think they understand business. Business is about teamwork, collaboration, motivation, enthusiasm, being sharp and most importantly about being ethical. Other than wasted intelligence, can anyone see a difference between this group and the people who were running our banks?

Here are my top learning points from this weeks episode of The Apprentice;

1. Don’t spend too long on naming exercises; Calling yourself Team A or Team B will suffice
2. When meeting someone for the first time, don’t ask them if they have started anything (if you are both going for a job interview as an apprentice it is safe to assume that even if they did start something, it was not a huge roaring success)
3. Don’t call potential customers liars. (You may feel that my running a sales consultancy gives me an unfair advantage – but please trust me, it is something that I never got taught)
4. When negotiating – don’t talk over each other. Best still remember the golden rule of negotiating – silence is key!
5. When talking to men – don’t accuse all men of being stinky

I trust these pearls of wisdom are helpful. It is a shame I was not able to brief the candidates before the episode!

Related articles by Zemanta

• Apprentice candidates include an estate agent (theRatandMouse.co.uk)