Business Angel Blog

As an investor and a business student, I think it is important to want to meet people with fresh and interesting solutions to problems. Access is always difficult though (as I recently learned through LinkedIn when I tried to connect with some people from Hollywood whom I did not have any connection with – if any of you can help, please do!)

Often the most interesting and promising entrepreneurs are not those who are one or two degrees of separation away, but genuine outsiders: from different sectors, countries and backgrounds. For this reason, while many excellent people still come to me via introductions, I always try to read messages via my blog, twitter and those (often awkward) “please add me to your network LinkedIn” requests.

Here’s the rub. Once you turn on the digital openness tap, you get swamped. There is no such thing as a trickle. You let one person in, you let everyone in – from those who’ve thought long and hard about contacting you, who’ve done their research, who’ve targeted their pitch, to those who just chance it, giving little thought to their approaches, thinking what have they got to lose. You know the type: “I’m thinking of starting something… I’d like to ask a few questions… can we have coffee?”

I barely have time to review all the messages I receive. I certainly don’t have time for all the coffee requests.

But if you’re really serious, I do want to hear what you have to say, and more often than not, I would love to meet you.

That’s why I’ve started using new platform OneLeap, which tests your seriousness by asking you to ‘put your money where your mouth is’ to send me a message. This is not pay to pitch. When I reply to your message (and you get a guaranteed reply in 10 days or 100% of your money back) the fee benefits my chosen charity, Kids Company. For me the value of the fee is a quick way to tell if you’re serious – it screens the timewasters pretty quickly. And the charity support is a great bonus.
The other day, I received my first OneLeap message – a targeted and interesting pitch. I ended up meeting the person who got in touch and watch this space!
One of the benefits of OneLeap is that I can cap the maximum messages per month I receive. So I know I’ll never be swamped, and you know, if you contact me through OneLeap, that you’ll be one of a few serious people, not one of a big pile (some serious, most not). I also know messages will be no longer than 400 words. And that is an art in itself, and it means I never have to endure again the “my business isn’t like everyone else’s and cannot be condensed to an elevator pitch or less than 1000 words”.

You’ll find other angels on the platform – as well as decision-makers in business – valuable access if you’re a small business trying to reach out to potential clients. As I discussed in my last blog, the economic climate offers a good opportunity here for entrepreneurs.
You can also sign up yourself, to help prioritise your messages (we’re all busy after all) and help a good cause while you’re at it. To use OneLeap as a more effective filter over existing services, I’ll also sometimes reply with a tweet like this:

@[name] Please tell me via @oneleap why you’d like my attention http://oneleap.to/permjot. Messages help @KidsCo_Tweets

I’ve also put automatic reply below on my email.

To show you’re serious, reach me through OneLeap at http://oneleap.to/permjot

The exciting thing about being involved in the fields that I am working in is the fact that you are always learning. I have said that before of course, but it is so true. There is an endless discussion amongst people who discuss the differences between managers, entrepreneurs and leaders. I, for one, have written about the differences I see between coaches, mentors and consultants as I think there is a real and important distinction between them.

I recently had a meeting with Andy Goldberg, someone I have been lucky enough to call a friend for several years. The guy is seriously a genius and as well as being a full time surgeon he is also the driving force between www.medicalfutures.com

This morning we were talking to someone who I hope will soon be joining the fold. One of the questions Andy asked was around the difference between a manager and an entrepreneur. It is a great question and there were three very different answers. What do you think is the difference?

Well, the first answer was a very typical young MBA answer. It was all about attitude towards risk, ambition and vision. It was a very good motivational answer but it was just wrong.

Then my answer was around a Manager being someone who executes a plan whereas a great entrepreneur can create the plan and the vision. Which may sound great but is actually just empty waffle which doesnt really help.

Andy’s answer was that an entrepreneur gets resources needed to get a job done whilst a manager gets great results from a given amount of resources. I loved the simplicity of this answer and also found it useful in terms of understanding what people enjoy doing. A lot of us like the idea of being called an entrepreneur, whereas we may be better suited to being a manager. The big breakthrough in my career came when I realized I wasn’t a particularly good CEO but I was very good at other bits – and if I focused on them – I could make more money and be much happier than trying to be a CEO (because that is where I thought all the glory was).

This definition also fits in neatly with what I think a CEO should do. Get the money and people needed to get something done whereas a great COO will be able to get the thing done – better and with probably less resources than most ‘entrepreneurs’ would.

Through this exercise, I also recognized that I love being a manager – and my enterprises are all about bringing managerial skills to play. That is getting things done for less resources and better than someone else.

So what are you?

There is a lot of management speak about learning to overcoming your fear. Most of the fears we have are based entirely on very good reasons. For instance, I am very scared of Great White Sharks; that is a healthy fear. So last month, in South Africa, I went diving in the Ocean with some Great White Sharks and it was an awesome experience (one of the best moments in my life!) but it did not help me overcome my rational fear in the sense that I would never want to be in the Ocean with those beautiful animals without the aid of the cage that I was in at all time.

And we get on to talk about Entrepreneurship. One of my many pet hates is the way we are encouraged to become a nation of ‘risk-takers’. Entrepreneurship is not about risk taking, it is in fact the complete opposite. And risk taking is not in itself a good trait. I would argue it was the risk taking culture that existed in the investment banks that got our economies into the terrible mess we are in. Borrowing money is always a risk, and we in the West were collectively encouraged to take this risk; so the idea that risk taking is an inherently good thing to do is simply wrong.

The best business start ups I have been involved in are all about mitigating exisiting risks rather than being an exercise in taking risks. It is interesting to note that many of the biggest companies that exist today (Apple, Microsoft, Oracle etc) all started off as Consultancy projects where the basic product was developed at someone else’s expense and then scaled up and rolled out.

Business is not about taking risks and I will never invest in someone who shows off about the fact that they are a risk taker. That is also why I have had a problem with the over use of the word entrepreneur.

This is why a track record is so important for investors. It is recognising that the ‘entrepreneur’ has learned that running a business is not about taking risks but about managing risks.

My background is in sales and my first business (which I am still running) focuses on sales training. What is interesting though is that the best business lessons I have learned have probably been as compliance officer of Flight and Partners, the fund management business that I co-founded over four years ago.

It is all about recognising the inherent risks involved in business and systematically reducing those risks. It is the same as any extreme sport or back to cage diving with Great Whites. People engaged in those sports don’t advertise the risk, but rather focus on how the inherent risks are mitigated. Risk means there is a strong chance of different outcomes.

Let me tell you, I am not going into the Ocean with Great White sharks with someone who advertises the fact that they love taking risks. I can tell you, investment decisions are made on the same basis.

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.

A few weeks back I visited Poland for the first time and went to a place called Sczeczin. I was there to talk to a new Angel Forum that has been set up there and the strange thing was that this talk came about because of my Canadian connection. (So, I was an Indian Brit, representing Canada, in Poland).

I was reminded that my Canadian adventure started with a talk at an angel conference two years ago. So who knows what this may be the start of?

There were many interesting things and it was good to hear from local Polish Business Angels. They were talking about exactly the same issues that angels talk about everywhere I have been. They were worried about due diligence, documentation, valuation etc . So, whilst my last couple of blogs may have highlighted the differences between angels in terms of what they look for, it is also good to know that on the broad issues, we agree.

I also met an American from Honolulu who is now living in this very small but charming part of the world. It is refreshing to see how many people around the world end up in strange places just because they visited a place once and fell in love with it.

I am still utterly fascinated by how former communist countries have made the transition from command to free economies. Anyone under 30 in Poland will probably not realise the enormity of the change their country has been through. It was great to see how Poland has for the most part avoided interpreting economic freedom as gangster capitalism as other Eastern European countries have.

Much of the focus of the debate was about how Universities can commercialise their innovations and it remains a very interesting topic. ISIS (University of Oxford commercialisation arm) presented and it was brilliant to hear how a leader in a field does it. However, there are dangers from trying to implement a model that works for one of the (if not the) leading University in the World with over 800 years of history.

My advice to entrepreneurs and angels would be to travel a bit every year. But I don’t mean travel as in holiday. I really do mean that you should go and try and speak to people involved in your industry across borders (perhaps there is an internet based matching opportunity here?)

And to Poland I say Czan quia!

In a chilling speech last week, the German Chancellor, Angela Merkel said that Multiculturalism has utterly failed. Across Europe, Xenophobic politics seems to be on the rise and you can see echoes in terms of the economic situation we are in and the need to blame someone, with the dark days of Europe in the 1930s.

What I find ironic is that a country like Germany would say that they have attempted multiculturalism. The UK, Canada, US, Singapore and India amongst others are vibrant and successful multicultural societies. Multiculturalism means that being from an ethnic minority and belonging to another country are not mutually exclusive. In France you are French and that is it (although they have a whole heap of their own problems with integration). But in Germany, the idea of German citizenship and identity is deeply linked to a notion of ‘bloodline’. And although the law changed somewhat in 2000, it is still very hard to become German.

There is no wonder therefore that their version of multiculturalism has failed. And yet rather than look at what they can do to make people feel more German, the solutions they are coming up with are around making it even harder for immigrants to settle in Germany.

What does this have to with being a Business Angel or advice to Entrepreneurs?

I passionately believe that business and people thrive when borders are open for trade, capital and people. Societies which have managed to resolve (and many are still resolving) ethnic differences are stronger and more dynamic than closed societies. In the early 1990s a fear had gripped the US (which was rapidly being overtaken by Japan as the leading economy) that perhaps it was the fact that the Japanese culture is so homogenous that gave the Japanese an economic advantage. In a landmark speech, displaying true leadership, President Clinton rubbished these claims. He argued that America gets it strengths from its multiethnic and diverse fabric. Whilst those differences have to be negotiated and worked out (1992 saw Race Riots in California), the US was a more dynamic and vibrant place because of it. I believe he was right.

Investment opportunities and wealth are enhanced through the free movement of capital and people. However, if countries want these dynamic entrepreneurial people to stay and enrich the country, they also have an obligation to make people feel welcome. Yet rationality is never the ruler in these matters.

Angels are increasingly making cross border investments and many entrepreneurs I know and admire do not recognise borders. Many people still see international trade as a zero sum game. It is not and entrepreneurs and angels need to keep selling the merits of free movement. To badly misquote “I may hate the competition you bring, but I will defend to my death your right to compete”

I recently wrote a post about what investors look for. It was so generic that you may have got little value from it. The point was that each and every investor will look for something slightly different. However, I hope you enjoy this blog looking at what almost all Investors do not want to hear in a pitch or question and answer session. Scarily, I promise you all of the comments/ sentiments are from real examples I have heard….

1. It seemed right (when asked why the company was valued at £3m pre-money)

2. All seems like a bit too much bother (when told what the company needed to do to get investment – after doing a great pitch where investors wanted to invest)

3. This is a sexy business

4. Let me answer a different question

5. That would be fair (when a CEO was told that “You haven’t given us much confidence to invest in the business have you?”)

6. We will IPO

7. We will be bought by Google

8. One of the management team is related to (any high profile name will do)

9. I am a serial entrepreneur (point is if you are – you would not be pitching to strangers)

10. Anyone else not understand the business model?

I hope you found this more useful than my last blog.

One of the Angels I work with will not invest in businesses run by an entrepreneur who is a single child (I guess he is going to struggle to find people to investable people in China!). But his reasoning was that single children tend to be spoilt and he likes to back people who have learned to share resources.

Last week I was in Calgary and one of the businesses that I have just got involved with went there to pitch to the Angel group there. The pitching process involves a 10 minute pitch to two sets of investors in two different cities; Calgary and Edmonton. These two groups could not be more different. Calgary was about the numbers, the team and the business. Edmonton was about the technical side of things. I am confident that the company will raise a lot of money, but that most of it will come from Calgary (if not all of it).

The other interesting thing to note is that the investors in Calgary really liked the presentation and commented on how good it was (very pleasing as I helped develop it!). The investors in Edmonton commented on how they did not like the fact that the presentation was so good. They believe that a good presentation hides flaws in the business.

The reason I mention the above is that it makes it very difficult to answer the question, what do angel investors look for?

I am giving a talk next week in Poland about Angel Investing. After the talk, I would be happy to post the presentation on this Blog. The presentation is about what I look for in a proposal. Most Angels will say that they are looking to back three things

1. Management
2. Good Business Model
3. Proven Idea/ concept

That sounds easy enough. But it is too generic. It is rather like saying I like the colour grey (There are hundreds of shades of grey – and some I will hate and some I will really like).

Each and every angel will judge the above factors very differently. So I guess when you are pitching to Angels, find out what they have invested in before and get a feel of why they invested in those companies (talking to Angel groups, it is amazing how few companies ask them “What kind of deals does your network do?” or “What does your network look for?”) And then you need to change each and every presentation slightly to address the different emphasis that different investors may have.

It might be easier for me to do a blog on What Not to say!

Most entrepreneurs when they pitch think that all they are asking for is money. Sometimes when they are recruiting people to join the team, they may only be thinking about acquiring talent. Sometimes what companies really need is Monergy. That is Money and Energy (directed and talented energy).

One of my bugbears (I have so many) is that entrepreneurs are often not clear about what they are after. The reason why this is important is that angels are often wrongly accused of putting in ‘dumb money’. That is they write a cheque and that is the end of their involvement.

My counter-argument is that on many occasions, angels ‘helping’ are seen as interfering angels. And when I invest as an angel, I am backing the management team. If the company wants my help (and sadly for my ego, very few companies do ask for my help) they assume that this help would be available for free. Of course I want companies I have invested in to do well, but there is a cost to time. The best way to overcome this is to agree a different valuation for monergy and for just money.

For example, I have invested in three companies in Halifax recently, one of them www.curingresin.com needed no help from me at all. It was an easy straightforward investment (money only). Another company www.shotloc.com needed a combination of money and energy (Monergy), so we agreed a combination of a straightforward investment (along with other investors) and some options in the business (so that if the company benefits from my input, I am able to share some of the uplift in value).

Finally, one company needed much more time and effort than money, so in that instance it was a straightforward options package. When the company does get to the stage where they do need straightforward investment, I may decide to invest (with no bearing on my existing options package).

I guess the point here is that entrepreneurs should be clear about what their ask is. As an aside, I was talking to a very close friend of mine from the other side of the pond. The ‘criticism’ he faces from people he works with is he would be so much more effective if he would just focus on a few things. The common denominator these critics have is that the projects they wish him to focus on is always their own – and further more they do not want to pay him for that focus!

Be clear about your ask, if it is Monergy, that’s good but allow that to reflected in the valuation.

I often ask start ups how they get funded and some reply that they are bootstrapping. Despite having an MBA, I hate jargon and I hate people trying to be clever. Bootstrapping is a new word (in terms of the current meaning) but the idea that you start a business with your own money is as old as business itself.

The danger with entrepreneurs stating that they are bootstrapping (and all the accompanying courses that go with it) is that it gives the impression that bootstrapping is a planned strategy. I am sorry but I think that is wrong.

To have a strategy that says we have no money is not right. Some of the businesses that I am involved with have a plan of not raising any external investment. The decision was based on looking at the costs we needed to start the business and gain traction and then comparing that to the resources we already had. We called it self-financing not bootstrapping.

The other problem with bootstrapping is it can sometimes force you into making the wrong decisions for the wrong reasons. There comes a point where a business has to have money to expand. I have lots of examples where businesses are being held back because of cash. The honest companies admit that they need cash to allow them to get the growth path they need going. Others will somehow pretend that their strategy is to bootstrap.

Bootstrapping (I really hate the term) gets businesses thinking about the wrong thing straight away. Are you interested in surviving or going for growth? The two things are not always mutually exclusive – but they often are.

I understand the need to preserve resources until you achieve proof of concept; that is a different thing altogether. I will often not want to back a company until at least one person has bought the solution or I am convinced by its merits. But the companies that I have backed pre-revenue such as www.mydeco.com were never in the bootstrapping mould. It was obvious they were going for it, and going for it big.

I guess my motto would be, if you are going to fail, fail big. Do not go out with a whimper. I am afraid that Bootstrapping leads to that whimper…….