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

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.

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.

There is this strong belief that somehow entrepreneurs make better advisors to entrepreneurs. I want to challenge this. I should declare that I do have a commercial interest in challenging the above belief. I make most of my money advising entrepreneurs and investing in them. I would say though that I do not consider myself to be an entrepreneur.

My most successful businesses to date are Help with Sales Ltd (a consultancy business) and Flight & Partners (a fund management business). However, I do not believe these businesses ‘qualify’. It is rather like many people (including myself) who made money from buying and renting out property. We are property investors not entrepreneurs.

Back to the main point, the feedback I have had from many companies (including Seedcamp participants, Canadian companies and companies I work for in Manchester) is that they found my feedback and advice useful. Most of them just assume I am a successful entrepreneur; and to be fair, I do nothing to correct this impression! But would the advice suddenly lose value because I am not an entrepreneur?

I guess because I so admire entrepreneurs and entrepreneurship (I hope this comes across in my blogs), I am able to understand the difficulties that they face and try to give practical advice that they can implement tomorrow. I also don’t have the reference point of saying ‘I did this’.

This blog got me thinking about the talks I have had from truly successful entrepreneurs and to be honest I remember that most of the talks were extremely inspiring and made me want to reach for the stars, rather like watching an action movie can make you want to get fit! But these great talks do not necessarily give practical insights or help you figure out what you should do tomorrow.

I have always been a good salesperson, it is something that has come easy to me and yet I never really understood what I did or why I was so good at selling. It was only when I failed in a sales role and read a book (SPIN Selling) that I understood what I did and how I could do better. In the same vein, I think Arsene Wenger and Jose Mourinho are fantastic football managers because they were not great footballers themselves and thus appreciated the art of football better than some great players who went into management.

So, I think failure, or limited success is a great qualification for an advisor. And using this criterion, I qualify. And perhaps the seeds are there for me to become a great angel advisor (although I really hope not!)

And finally if any ‘successful’ entrepreneurs want to challenge my qualifications to be an advisor – I would say that a business I co-founded has returned 10 times the money invested by shareholders within two years! I may not qualify as an entrepreneur, but I can say that I have made a very good return for my shareholders – something more entrepreneurs could do with learning.

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

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.

I was at a very nice lunch last week hosted by my lawyers (and who said there was no such thing as a free lunch?). The lunch was simply wonderful and during the conversation I naturally explained what I was doing in Canada, and that I now spend at least one week a month there. This then led one of the people at the lunch to say I was a great example of an entrepreneur.

Of course I was flattered, but in all honesty I do not consider myself an entrepreneur. I would describe myself as someone who just stumbles from one thing to another and hopes that one of the things I stumble across works. As a very successful angel investor described his investment approach “spray and pray”.

The problem with the above is that it does not fit into the description that most people have of entrepreneurs or successful investors. I have often sensed the disappointment in business students when I am doing my talk at St Mary’s University when I explain that the route to where I am now was littered with accidents and very lucky coincidences. What a lot of us want to hear is that there was a plan and some positive thinking affirmations.

I personally have a real thing about people calling themselves an entrepreneur. I think it is for someone else to call you that. Most people I know who call themselves entrepreneurs are rather like waiters in Hollywood who call themselves actors. It means nothing to me.

If you had an enterprise which had launched or was running – you would talk about that. Calling yourself an entrepreneur implies you do not have one thing to talk about.

Judging upon whom I am talking to, I will describe myself either as a Salesman (my preferred description), Fund Manager, Angel investor, Blogger (is that a valid job?), Business consultant or trainer. The point is that I would never call myself an entrepreneur as it ends up meaning nothing other than tell the person I am describing myself to – that I have nothing substantive to point to. And trust me – I never want to invest in someone who describes themselves “as a bit of an entrepreneur”.

I was at another lunch recently where I asked someone what they did. The answer was “I run several businesses”. She did not know who I was at that point, but she had lost my interest straight away. I am involved in several businesses but I only run one – Help with Sales. I am sure some of you will disagree but I find it very difficult to imagine someone actually running more than one business.

Why do people do it? Just remember that great saying “money talks, bullshit walks – but wealth whispers”.

In my last blog (which was a bit depressing I know) I highlighted that the due diligence process is a two way thing. Just as an angel will carry out due diligence on you – you will need to carry out diligence on them.

Here are some of the questions you should ask them with an explanation of things to look out for;

1. Where are you meeting them? I have to say that I have been very disappointed by so called Angel events in the UK. In Canada at the First Angel Network, they really probe and make sure you can only come to an event if you have both the means and the appetite to invest. Lots of people want to join the network to sell their own services. FAN is great at excluding them. If you are lucky enough to pitch at a FAN event you WILL raise serious money. I went to a London event last week. Out of the 120 people at the event, I suspect only 12 to 15 people were investors.

2. When did they last invest in something? (if it was more than 12 months ago – forget it) you have to be careful that you are not the ones they are losing their virginity to. I took ages over doing my first angel investment. And when I did do it, I put in half the money I first wanted put in. (That is very common as well)

3. What have they invested in? (if they give you sectors or generic descriptions – probe more. Most of the investors I know love telling people what they have invested in. I, for one get a real buzz telling people about the businesses I have invested in. Funnily enough, one of the Canadian Angels I was working with got ‘caught out’ through this probing)

4. Do they invest or do they ‘earn’ sweat equity? There is nothing wrong with sweat equity (I can do a blog on this if required) but be clear that this is what you after. I prefer combination deals whereby someone puts in hard cash as well as the opportunity to earn more. Human nature being what it is we have a greater motivation to not lose something rather than win something. Therefore I will be twice as motivated not to lose £25,000 than I will be to make £25,000. (Strange but true)

5. Can they give you references? If it looks like you will be doing due diligence together and spending time – find out what they are like as an investor. Ask the companies they have provided details for.

6. How much do they normally invest? I was raising money for a business once in the region of just under £1m. One potential investor I met asked some great questions and wanted to meet the entire management team (not unreasonable). I then learned that he wanted to invest £10,000. Nothing wrong with that amount – but if every investor putting in that level wanted a meeting lasting two hours that is 600 hours of management time (assuming one out of every three investors you meet ends up investing). That is 15 weeks of management doing nothing but raising money!

7. Do they invest with ‘strings attached’? There are loads of tricks whereby investors can get more from their investment. Again nothing wrong with this – but you have to be clear from the outset. For example, do they insist on being a Director? Again, not a problem, but what is the cost. I have written a blog about one ‘investor’ I knew who had done a great PR job on himself, convinced many companies that he would be a great NED and invested £10,000 in many companies, but got a payment of £24,000 from each company (with 50% needed upfront) Fantastic business model – but I have to say it lacks erm Honesty! (he also did a very poor job) Again be careful of investors looking for a job – unless you need their skills.

I hope this is useful. It was good to write this blog as it is very much about going back to basics and the reason why I started out writing this blog. Sadly, the world of finance always attracts more than its fair share of talentless morons..

Make sure you find angels to back you who get the wealth creation and risk ‘thing’.

Best of luck.