I think it’s important to appreciate the relationship between three key ingredients in any business: enterprise, innovation and finance. An entrepreneur is a person who operates and assumes the risk for a business venture. Innovation which is the process of making improvements by introducing something new. Every successful company needs combination of these two ingredients, plus a healthy dollop of money. And they need to be mixed!
Getting these three ingredients to work together is the key to success. Each needs better understand each other’s language, motivations and values. This is doubly important in the UK where VCs and equity funders traditionally have an accountancy background compared to their more tech savvy USA counterparts.
Initiatives like the Enterprise Fellowship Scheme funded by Yorkshire Forward is a sterling example of how researchers can get some entrepreneurial DNA spiced into them without compromising their academic integrity. Having a potential commercial outcome in mind from the outset can inform the research as much as that all important journal publication. At Connect, we are increasingly involving academics on our company assessment panels to help assess technical innovations coming from the private sector.
Great companies are built by teams that bringing together money, management and ideas. You need a critical mass of these components and the infrastructure to connect them. People are the ultimate technology transfer agent and commercialisation is a ‘Contact’ sport. And organisations like Connect can provide an important mechanism for catalyzing and promoting this reaction, linking entrepreneurs and innovators with the resources they need to succeed.
Our upcoming Connect Investment Forum provides a key platform for promoting this interaction. We also provide online introductions through MyDealMaker and publish a periodic Investor Bulletin to bring companies on our radar screen to the attention of potential investors.
Monday, 27 April 2009
Tuesday, 21 April 2009
It's a Jungle Out There
I spoke at a recent Insider Spark event on the subject of 'What Education Can Do For Business'
In my experiences partnerships only work when both sides get something out of the relationship and ideally this happens when the whole is greater than the sum of the parts, creating a virtuous circle of success.
Mary Walshaw, the founder of Connect San Diego, talks about Shared Risk and Reward, and a collective sense of ‘ownership’. Community over individual institution or company. She also talks about creating an innovation ecosystem that is more rainforest than plantation. New ideas form at the intersection between disciplines, where cross fertilization occur, serendipity plays it part and diversity thrives in some chaos.
Now I am not saying orderly process and a commercialisation pipeline do not have a part to play, but innovation is non-linear and trying to select the winners and losers at too early a stage is not necessarily useful or doable. A vibrant innovation ecosystem gives new commercial concepts and ideas a fighting chance. Yes, if they do have the right DNA to thrive then the plantation analogy takes hold and that is where real VC funding comes into play. Once something emerges from the 'forest' that looks promising, then the emphasis needs to shift towards control, replication and development with a 'plantation' mentality to leverage value. These stages of a companies development are very different and the people that revelled in the early-stage anarchy may not be best suited to raising things in straight lines to regimented schedules.
But at the Proof Of Concept and Seedcorn stage you have to accept failure is necessarily omnipresent with success. There is a tendency to want to wait until something is proven before wanting to invest in it. We all want to make managed stepwise progress that avoids the risk of failure. The fact of life is that no matter how carefully you plan, you can't avoid making mistakes as part of the journey. Being too focused on the certain winners can be counter productive to the health of the overall ecosystem.
The key question is whether this early stage funding and support is seen as being focused on maintaining the diversity and health of the innovation jungle or is it to grow good ideas in plantations?
In my experiences partnerships only work when both sides get something out of the relationship and ideally this happens when the whole is greater than the sum of the parts, creating a virtuous circle of success.
Mary Walshaw, the founder of Connect San Diego, talks about Shared Risk and Reward, and a collective sense of ‘ownership’. Community over individual institution or company. She also talks about creating an innovation ecosystem that is more rainforest than plantation. New ideas form at the intersection between disciplines, where cross fertilization occur, serendipity plays it part and diversity thrives in some chaos.
Now I am not saying orderly process and a commercialisation pipeline do not have a part to play, but innovation is non-linear and trying to select the winners and losers at too early a stage is not necessarily useful or doable. A vibrant innovation ecosystem gives new commercial concepts and ideas a fighting chance. Yes, if they do have the right DNA to thrive then the plantation analogy takes hold and that is where real VC funding comes into play. Once something emerges from the 'forest' that looks promising, then the emphasis needs to shift towards control, replication and development with a 'plantation' mentality to leverage value. These stages of a companies development are very different and the people that revelled in the early-stage anarchy may not be best suited to raising things in straight lines to regimented schedules.
But at the Proof Of Concept and Seedcorn stage you have to accept failure is necessarily omnipresent with success. There is a tendency to want to wait until something is proven before wanting to invest in it. We all want to make managed stepwise progress that avoids the risk of failure. The fact of life is that no matter how carefully you plan, you can't avoid making mistakes as part of the journey. Being too focused on the certain winners can be counter productive to the health of the overall ecosystem.
The key question is whether this early stage funding and support is seen as being focused on maintaining the diversity and health of the innovation jungle or is it to grow good ideas in plantations?
Tuesday, 14 April 2009
A Debt to Equity
A new website http://www.firstfunding.org/ focused on raising debt financing from Business Angels has recently launched which is extolling the virtues of companies of this form of finance, rather than equity funding. As they note, most funding rounds for early stage businesses may incorporate a mixture of debt and equity, normally with the equity funders leveraging off the debt funding that is available from government back schemes, such as the Enterprise Capital Fund. Therefore, I am a bit bemused that the website leads on debt financing.
Making money by lending to companies the banks won't back is a tough ask without the equity element. The reality for most Business Angel deals is that the ones that fly need to pay for the ones that don't and no matter what interest rate you apply to a loan, the reality is that participation in the equity upside is required to make the numbers add up from a portfolio perspective. Our own FastInvest loan scheme seeks to do this by us agreeing with the company an appropriate equity option. Obviously not all companies we back will go on to greatness, but if some do we have a chance of getting back more than the accrued interest and capital.
There is a danger for many young businesses that they take on too much debt too early and not enough equity. Connect Yorkshire exists to help companies make the right funding choices and we offer impartial advice. Just as with the banks, making loans to companies requires that they generate sufficient cash flows to repay on the agreed schedule. The great virtue of equity is that there is usually no obligation to repay it unless there is an exit for all shareholders. Between pure debt and equity are a range of instruments to balance risk and reward. Attending our Investor Readiness Programme that gets underway on the 22nd April is a great way to get to grips with this subject. Why not register to come along and learn more about debt and equity funding!
Making money by lending to companies the banks won't back is a tough ask without the equity element. The reality for most Business Angel deals is that the ones that fly need to pay for the ones that don't and no matter what interest rate you apply to a loan, the reality is that participation in the equity upside is required to make the numbers add up from a portfolio perspective. Our own FastInvest loan scheme seeks to do this by us agreeing with the company an appropriate equity option. Obviously not all companies we back will go on to greatness, but if some do we have a chance of getting back more than the accrued interest and capital.
There is a danger for many young businesses that they take on too much debt too early and not enough equity. Connect Yorkshire exists to help companies make the right funding choices and we offer impartial advice. Just as with the banks, making loans to companies requires that they generate sufficient cash flows to repay on the agreed schedule. The great virtue of equity is that there is usually no obligation to repay it unless there is an exit for all shareholders. Between pure debt and equity are a range of instruments to balance risk and reward. Attending our Investor Readiness Programme that gets underway on the 22nd April is a great way to get to grips with this subject. Why not register to come along and learn more about debt and equity funding!
Monday, 6 April 2009
Is Planning 20/20 Vision?
Someone once said making predictions is hard, especially about the future. So while the G20 where planning our collective futures, the 20:20 Vision event last week featured Mark Faulkner, a former colonel in the Royal Dragoon Guards, who talked about "Fighting the tactical battle whilst winning the war against the economy". So what can waging war teach us about business? Well, quite a lot actually!
'Effect Orientation' was a major theme. Your soldiers (employees) need to understand the intent and context i.e. what your goals are and what stands in your way. The 'How' is devolved down, allowing initiative within constraints. The ultimate goal is to achieve a common purpose, not necessarily just to follow due process that gets you nowhere. This allows proactive action and initiative, rather than just being reactive to the enemy (competitors).
Colonel Faulkner put forward a framework (not a process) for thinking about planning a campaign:
'Effect Orientation' was a major theme. Your soldiers (employees) need to understand the intent and context i.e. what your goals are and what stands in your way. The 'How' is devolved down, allowing initiative within constraints. The ultimate goal is to achieve a common purpose, not necessarily just to follow due process that gets you nowhere. This allows proactive action and initiative, rather than just being reactive to the enemy (competitors).
Colonel Faulkner put forward a framework (not a process) for thinking about planning a campaign:
- Identify the What and the Why.
- Define what you know and don't know
- What resources you have
- The actions to take (which lead to effects)
- Timeline (when to do things in a synergistic or harmonious way).
- Monitoring
- Control
Mike Briercliffe commented in his summation"No plan survives contact with the enemy", so the ability to be adaptive and resilient is just as important as a well thought out cunning plan! However good it is, it's going to change as you engage reality.
For those of you involved in software development this has parallels in object orientated development where the focus in on identifying decoupled activities and focus on the external impact of objects, rather than the internal workings. This also emphasises hierarchical decomposition and solving independent subproblems in parallel.
One attendee commented that this theme might be incorporated into our Investment Readiness Programme. I couldn't agree more! Everyone in business is waging a war on uncertainty and making decisions with limited information. In any campaign, effect orientation (what difference an activity or action makes) is the key.
Another key point was in resource limited situations, you don't simply respond by spreading your jam uniformly thin, but focus resources where they can make most impact. Companies that are responding to the recession by simply freezing wages or cutting marketing budgets may end up surviving the battle but lost the war.
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