Business Angels and Investors need to step up, not run for the hills!!

Covid 19 is hitting all of us really hard. On many levels we are in a period of uncertainty. While we struggle with supermarket shopping or going for walks in our favourite locations, the (dare I say it) tsunami of distress is yet to come in countries that can barely afford regular health care. The projections from Imperial University of possible deaths in the region of 40 million on current trends and with no mechanisms to halt the spread of Covid 19 are scary to say the least.

Governments can do what they can do. In the end they are slowed by their procedures, political posturing and various bottlenecks.

So, is it time for investors and business angels, perhaps with philanthropic organisations and individuals to step up and provide the resources and inspiration to make a difference – at speed?

From what I have seen and heard recently; investors have run for the hills. They have discounted valuation on new investment opportunities because all they can see is risk. Fair enough – but they are not in as much trouble as the average homeless person. Come on, guys show us that empathy and a long view is possible and that at a time like this we can show some vision. Some VCs and Business Angels may well have stepped out on to the streets and clapped and cheered for the NHS. How about giving us a reason to clap and cheer for you?

I could make this a really long and reasoned blog (or rant) but let us stick to some basics for UK for now and make it wider for other countries.

How about – as part of fiscal reforms the HMRC looks at making SEIS and EIS even more attractive for Business Angels. Sharing risks a bit with them. Afterall for many it could be their pensions we are asking them to risk.

And how about Business Angel groups coming together to raise a single fund to address the needs of Covid 19. These could be with diagnostics, ventilators, social enterprises and physical infrastructure. And not just for UK needs – but look more widely at global requirements.

But here is the thing guys – let us set IRRs and terms and conditions that look more like grants than they do for mythical Unicorn returns.

How about setting a modest target of £100m to call for 10 – 15 potentially breakthrough innovations in cracking the Corona Virus.  There is an entire community of scientists and researchers who have potential solutions and nowhere to turn.

Let us see some leadership – not so much running for the hills as stepping up to the plate.

Keeping it affordable – how to get started in a recession

Reshma Sohoni – CEO of Seedcamp gave a talk to students at Cambridge on Enterprise Tuesday. Her perspective was that on the whole startup costs had come down by a factor of 10 – especially in software ventures, because there was so much more open source available, many more tools, platforms and other forms of incubation.
For example – with infrastructure:
– Hosting - Amazon Web Services, Google App Engine, Cloud Computing in general
– Software, Design, Technology – Sun Startup, MSFT BizSpark, Open Source, Assembla.com, 99Designs, Creative Commons
– Office Space – Sun Startup, Silicon Roundabout (Moo), Work where you live
– Marketing – Learn SEO, Befriend the bloggers (Zemanta), Become an expert (Mobclix)
– Go virtual as long as possible and avoid office rent, furniture, and phone expenses
And a mindset that says – we need to control costs – be innovative and grow a business by being resourceful was the central message of Seedcamp.
So the examples included:
– Core team should include developers and business development
– Initial hires should be for equity + salary to cover rent and basic food
– Biz Dev and other advisors for equity not fees
– Product - Use your users to iterate and help build your product
– Rent instead of buy;
– Outsource what’s not core;
Her exception was with lawyers and accountants – which she she advocated getting good ones.

What investors look for - on Dragons Den

Looking beyond the rough and tough entertainment of Dragons Den - here is what I took from the Christmas edition of the programme.

If you want to secure investment for a new idea or business and need to make a presentation to a group of Business Angels you will need to get yourself ready.

Going on TV is not the only way to raise money! See for example:

http://www.bbaa.org.uk/

But wherever you go look for money you will need to make sure:

Your pitch needs to work

Get your pitch - presentation - to be excellent. You need clarity; a charismatic presentation and ensure you build your credibility through the pitch. More on this through the rest of the notes.

Appearance - look professional. Make some effort at this

Your presentation needs to be evidence based, succint and your own demeanour needs to be such that the investors take a liking to you. Because no matter how good your idea - if they do not like you for what ever reason - they just won't invest. It is their money!

The content of your pitch

Make sure you have a grasp of your figures. It is no good denying your knowledge of numbers. It is not rocket science. If you do not understand them - make sure you get a good quality tutorial from someone well versed in finance - especially in raising money.

Ensure you have a grasp of who your customers are - not just the overall market place. Go read a book on marketing if you do not understand the importance of this. Perhaps Geoffrey Moore's book - Crossing the Chasm will help you. Book shops are full of useful materials. As indeed are local Business Schools, full of bright students who can get some market research done for you.

If you are in a buy and sell or a make and sell business - ensure you know what the costs, sales prices, profits and volumes all mean.

If you are in a service business - where you are selling time - see how best you can generate enough sales to realistically cover your time and all the various incidental costs.

During the meeting

Be clear

Listen to the questions - make sure you understand them

Answer carefully - not impulsively

Avoid arguing or begging

Try not to avoid answering the question or become evasive - it only gets harder to retain credibility

Be realistic

There are two ways of gaining immediate attention from an investor - real customer interest in sufficient numbers or of sufficient calibre - to make it realistic. This is a very clear way of reducing the percieved risk.

When it comes to getting a valuation on a new company - bear in mind that what ever money you ask for - you will have to give away some of your equity - the question is what proportion of your company will you give in exchange for the amount of money you are asking for:

High valuation

Great team - with previous experience of business and of working together (serial entrpreneurs).

A proven market - hard evidence - not just assertions.

A well researched developed product - with secured intellectual property (patents) - and a proven market. Better still if you have a fully functional prototyle or some early trial customers who are prepared to endorse you and your product.

Mid level valuations

One team member is solid - others not so convinving - perhaps part-time, not put their own money in or not technically convincing.

No hard evidence of the market place - relying on metaphors, instinct - but perhaps experience and some endorsements verify the potential. In other words we can see a "market" but perhaps not "customers".

Product has been developed to an extent, but needs resources to get it to prototype and get patents sorted out.

Low level valuations

The idea is no more than a good idea

The inventor/entrepreneur seems to have potential but is unproven - is a first time entrpereneur

The investor is likely to be taking a high level of risk with the early stage idea

The product has only just moved beynd a conceptual level

The investor feels they will have to do all the work to get the product underway because of the lack of experience of the entrepreneur

No valuation what so ever

The pitch was rubbish

The product is whacky

You argued

The market is completely unproven - no sight of customers

It looks like a lifestyle business that is better run from a bedroom or kitchen